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What is AE Equation Analysis and IS Curve Dynamics about?

An increase in the interest rate (i0 to i1) causes investment to decrease, shifting the aggregate expenditure (AE) curve down from AE0 to AE1. This results in equilibrium output falling from Y0 to Y1. The interest rate increase also causes the investment-savings (IS) curve to slope negatively when drawn between the two new equilibrium points (Y0, i0) and (Y1, i1). An increase in autonomous government spending (G0) causes the AE curve to shift up from AE0 to AE2, increasing equilibrium output from Y0 to Y2

Author

Deng Qiang

Language

EN