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true or false The IS curve is downward sloping because an increase in taxes lowers the...

true or false

The IS curve is downward sloping because an increase in taxes lowers the level of output.

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Answer #1

IS curve shows combination of interest rate and real output at which Goods market is in equilibrium.

So, IS curve will be downward sloping if decrease in interest rate results in increase in output. Interest rate is negatively related to investment so as interest rate decreases, investment will increase which will result in increase in real output and thus, IS curve will be downward sloping. There is no role of tax for IS curve to be dowmward sloping. Thus, IS curve is downward sloping because as interest rate decreases, equilibrium real output in goods market increases.

Hence this statement is False.

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