Given below are two statements :
Statement I : The IS curve is negatively sloped because an increase in the interest rate reduces planned investment spending and therefore reduces the equilibrium level of income.
Statement II : The smaller the multiplier and the less sensitive investment spending is to changes in the interest rate, the steeper is the IS curve.
In the light of the above statements, choose the correct answer from the options given below:
1
Both Statement I and Statement II are correct
2
Both Statement I and Statement II are incorrect
3
Statement I is correct but Statement II is incorrect
4
Statement I is incorrect but Statement II is correct