Question:
Which of the following statements is NOT correct under the IS-LM (Fixed Price) model?
Which of the following statements is NOT correct under the IS-LM (Fixed Price) model?
Updated On: Oct 1, 2024
- The LM curve represents the combinations of income and interest rate, where money market is in equilibrium.
- The IS curve represents the combinations of income and interest rate, where product market (goods and services) is in equilibrium.
- An increase in money supply raises income and reduces interest rate when the IS curve has negative slope and the LM curve has positive slope.
- Monetary policy has a relatively weak effect on income when the interest responsiveness of the demand for money is relatively low.
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The Correct Option is D
Solution and Explanation
The correct option is (D): Monetary policy has a relatively weak effect on income when the interest responsiveness of the demand for money is relatively low.
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