The IS curve is the “investment-savings” curve, and one of two main curves on the macroeconomic IS-LM model. The IS-LM model is part of Keynesian economics (in vogue).
The IS-LM model has two curves: one IS (investment-savings) and one LM (liquidity preference-money supply). The IS curve is downward sloping, like a demand curve on your typical supply and demand graph, and the LM curve is upward sloping, like the supply curve on a consumer S&D graph. The y-axis is “interest rate” and the x-axis is “investment.”
The IS curve descends because the higher the interest rate, the less firms will be investing. The farther you move down (and to the right) on the IS curve, the lower interest rates are, and the higher capital spending is for firms.
But the IS curve also represents something else...well, rather, everyone else (consumers and the government). Part of this macroeconomic theory is that the firm’s “I” is also the country’s “S,” which is consumer saving plus government saving (surplus only) plus foreign saving (trade surplus). Like firms, consumers and the government are incentivized to save more and spend less when interest rates are high. Since I = S, both of these are represented by the downward-sloping IS curve.
The IS-LM model is used by macroeconomists to analyze the big picture...like trying to explain changes in aggregate demand and national income. Yep, the really big picture, all in one graph.
Related or Semi-related Video
![Econ: What is Income Distribution?](https://media1.shmoop.com/video/thumbnails/ECON.FINANCE.053_770x433.jpg)
Econ: What is Income Distribution?2 Views
And finance Allah shmoop What is income distribution All right
What's income distribution Well it's income You know those paychecks
you get sometimes Yeah how it's distributed among the masses
in a country and or around the world But normally
the way we look ATT income distribution is to divide
a nation's population into five or ten equal groups And
then we can look at how much of the total
GDP pie each of those equal groups of people is
getting well When the pie slices are sliced equally that's
an equal distribution of income The more unequal the pie
slices look while the more unequal income distribution is those
are just the facts and what we'd call positive economic
statements But it's normal Have opinions When we're talking about
economics which are called normative statements many people think that
the more unequal income distribution is the less fair it
is Plus there's some economic theory and research backing the
idea that extreme income inequality can actually be bad for
the economy But well even that's up for debate It
depends how you define the economy Economist have come up
with a genius tool for making measuring income distribution as
easy as pie and well actually even better than a
pie chart It's called the Loren's Curve and the Gini
coefficient These things right here if a nation was perfectly
equal it would be a straight diagonal line like this
If you look at the X and Y axes well
this makes sense The X axis is the buckets of
people in the Y Axis is the percent of money
to be spread among them on a straight line The
bottom ten percent of people are getting well ten percent
of the money The bottom fifty percent of people are
getting fifty percent of the money in the bottom ninety
year getting ninety percent right The more saggy the line
is like there's the sags the less equal it is
Well for instance as income distribution has become less and
less equal in recent decades sort of depending on how
you do the math the US Lauren's curve has gotten
Sagheer and saggy er just like your skin will one
day Sadly trust us in this graph Using data from
the late nineties in early two thousand's you can compare
Denmark in Hungary two of the countries with some of
the most equitable income distribution with Namibia one of the
least equitable The first line below the blue one is
Denmark In the second between the yellow silver and red
area is Hungary and the third one that one's Namibia
See how saggy Namibia is Well if you look at
the bottom eighty percent of the people the four on
the X axis there you'LL see that they were only
getting twenty one point three percent of the nation's income
Now that you understand how Lauren's curves work either keeping
things tight or saggy there we're going to take a
look at the Gini coefficient Well the Gini Coefficient takes
the Lauren's curve reducing income distribution down to a single
number You know like a jet I take a look
at this graph The more sag there is to our
Lauren's curve while the bigger the area gets and the
smaller the B area gets the Gini coefficient is a
over a plus B If our Lauren's curve overlaps with
our perfectly equal straight line well then the area is
zero making our Gini coefficient also zero But what if
the saggy sag sags all the way down to the
X axis which means income is distributed really really unequally
Well that would make the Gini coefficient one right Gini
coefficients are ratios so they're always expressed as a number
between zero and one sometimes expressed as a decimal or
a percentage the closer to zero The more equal the
income distribution in the closer the one the less equal
Well the Gini Coefficient takes all those numbers the stilling
income distribution into one single number meaning that it's super
easy to compare income distribution of different countries Though it's
good to remember these air more estimates than actual numbers
Since most countries inflate or deflate their GDP numbers they're
international politicking and all the other crap that goes behind
it So just is the U S Lauren's curve has
been sagging as time goes by at least in the
modern era with income distribution getting less and less equal
It's Jeannie Cooper Fishing has been getting bigger and bigger
Okay so what's the role of taxes in income distribution
How do they work Well there are progressive taxes and
regressive taxes Progressive taxation is where you pay a higher
percentage in taxes The more money you make For instance
in the country of United Simpleton Sze Everyone pays ten
percent on their first twenty grand than twenty percent on
their next eighty and then fifty percent on any income
over one hundred grand Well these different buckets are called
tax brackets and under this quote progressive unquote tax system
Billy Bob who makes thirty grand a year's tax at
ten percent on his first twenty grand of income and
twenty percent on his last ten thousand of income That
leaves Billy Bob with twenty six grand to live on
Well then he have Joe Schmoe who makes one point
five million dollars Well he's taxed ten percent of his
first twenty grand twenty on his next eighty and fifty
percent on his remaining one point four million That leaves
Joe Schmo with seven hundred eighty two thousand dollars to
live on A regressive tax also known as a flat
tax is where all income is taxed at the same
rate No matter how much you make it's called a
regressive tax since it takes a more meaningful percentage of
income from low income people compared to high income people
to pay those taxes For instance if the united simple
Don's had to pay twenty five percent on their income
Well that would leave Billy Bob with twenty two thousand
five hundred dollars and Joe Schmo with one million one
hundred twenty five thousand dollars Well because there are so
many normative opinions on what's fair when it comes the
income distribution there's plenty of debate over what level of
taxation and social programs and public services are best to
use So yeah there's certainly plenty room for all this 00:05:34.933 --> [endTime] debate but on leave politics for another video Oh
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