Overview
The IS curve plots the relationship between interest rates and income.
As a first step, we postulate that the level of planned investment is determined by the prevailing interest rates in the economy, which we write as
{% I = I(r) %}
Note that this equation makes the simplifying assumption that the interest rates can be represented by a single number,
generally referred to as the level of interest rates. The true relationship would be that investment was
a function of a vector of interest rates, representing points on the curve,
{% I = I(\vec{r}) %}
or even more generally, investments could be function of a curve. To keep the analysis simple, we stick with the
assumption that there is a single number, termed the level of interest rates, that investment is dependent on.
IS Curve Charted
Interactive Charts - interactively shows the relationships that generate the IS curve.