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1. Aggregate demand = Consumption + Investment + Government spending + Exports - Imports

Decrease in Investment level will reduce aggregate demand in short run whuch shift demand curve to its left from D to D1 which reduce price level from P to P1 and output reduce from Q to Q1.In medium run, producers will raise their supply of goods because they can reduce the nominal wages paid to labor due to fall in price level which result in fall in cost of production. Rightward shift of supply curve will produce same oitput level as before while reduce price level further.

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2.Based on the equation of the IS curve given in this case, the aggregate output or the real output or income is the function of the aggregate investment expenditure, autonomous and actual consumption expenditure by households and consumers on goods and services, the marginal rate of taxation, and the aggregate government spending in the economy. Now, as the total or overall autonomous consumption in the economy increases, note that based on figure-1.6 presented in the question, the IS curve shifts rightward or outward reflecting an increase in the overall real output or income in the economy, holding everything else constant or unchanged. The autonomous consumption basically denotes the consumption expenditure that is not contingent on the disposable income of the housheolds or consumers and have to be depended even if the disposable income is none or 0. Examples, of autonomous consumption expenditure by the households can commonly include monthly rent payments, regular utility expenses, loan or debt repayments, interest payments on financial borrowings, and so on which have to periodically paid regardless of the disposable income of the consumers and households. Now, supposing that the government implements an expansionary monetary policy leading to a reduction in the interest rate, holding everything else constant or unchanged. This would induce many households to pay interest payments faster on any existing debt or loan thereby enhancing their financial leverage and increasing the overall autonomous expenditure in the economy. An increase in the personal or private aggregate savings of the households would also expectedly lead to higher spending on regular utilities in day to daylife which can consequently increase the overall autonomous consumption expenditure in the economy leading to an increase in the real aggregate output again holding everything else as constant.

(b) The interest density of aggregate investment expenditure basically signifies the responsiveness or sensitivity of the overall investment expenditure by the business organizations or companies towards any certain change in the interest rate in the money or loanable funds market. Now, as the interest rate decreases the cost of financial borrowing also decreases thereby inducing higher aggregate investment spending by the business or organizations or companies as now they would have to pay lower interest payments on any business or commercial loans from any commercial bank or other financial institutions and vise versa. In this instance, based on the investment function mentioned below the figure-1.6, as the interest sensitivity of investment expenditure decreases or a1 drops, the aggregate investment expenditure increases which would eventually lead to an increase in the real aggregate output or income in the economy, graphically denoted as a rightward or outward shift of the IS curve. The reduction in the interest sensitivity of responsiveness of investment expenditure can practically occur as the business organizations or companies have a much stable and predictable expectation about the future interest rate in the money or loanable funds market which would lead to a consistently stable money or loanable funds demand as well. The future expectations of less future volatility of fluctuations in the interest rate due to any adverse macroeconomic shock in the economy could induce the business organizations or companies to enhance their business or commercial investments to liquidate or fund any business or commercial projects or undertakings thereby causing higher aggregate investment expenditure in the economy and consequently leading to an increase in real aggregate output or income as signified by a rightward shift of the IS curve.

(c) The marginal rate of taxation essentially implies the tax rate imposed by the givernment on each additional unit or level of income. Therefore, an increase in the marginal rate of taxation would consequently reduce the disposable income of households and individual consumers leading to a reduction in the aggregate consumption expenditure on goods and services which would further lead to a decrease in the real aggregate output or income in the economy. As implied by the IS equation presented in the question, an increase in the marginal tax rate would reduce the disposable income of the households and individual consumers leading to a reduction in the aggregate real outut or income, holding everything else constant or unchanged which would again cause a leftward or inward shift of the IS curve without any change in the interest rate. Marginal rate of taxation can be a practical representation of progressive taxation system and an increase in marginal tax rate can be intended to enhance the overall tax revenue of the government which could eventually lead to an increase in aggregate government spending or expenditure in the economy. Therefore, an increase in marginal tax rate is a practical implementation of a contractionary fiscal policy which can be useful during excessive economic growth or GDP growth to contain the growth rate or level at a healthy and desirable level by mainly lowering aggregate consumption expenditure on goods and services.