2 Experiments with the IS curve The end of Chapter 11 has some nice real-world examples that relate to the IS curve. Remember what we did in class. Aggregate demand at time t can be written as Yt = Ct + It + Gt + NXt . We introduced a model of a utility-maximizing household that lead us to conclude that consumption demand Ct is a decreasing function of the real interest rate Rt , and a model of a profit-maximizing firm which lead to the conclusion that investment demand It is a decreasing function of the real interest rate Rt as well. We then concluded that output Yt will also be a decreasing function of Rt