Advanced Macro & Growth · intermediate
What moves on the IS-LM diagram
An autonomous investment collapse shifts IS left, dragging down both output and the interest rate.
Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..
Firms shelve projects en masse. IS shifts sharply left.
Output and rates BOTH fall. Falling rates in a recession aren't stimulus arriving; they're demand disappearing.
Examiners ask this as: investment collapse is curve, confidence recession islm.
Other scenarios on IS-LM