898 #
© 2014 Pearson Canada Inc.#
The LM curve will be vertical and fiscal policy ineffective when ____.
A) the demand for money is unaffected by changes in the interest rate
B) the demand for money is unaffected by changes in income
C) investment is unaffected by changes in the interest rate
D) investment is unaffected by changes in income
Answer: A
Diff: 2 Type: MC Page Ref: 12
Skill: Recall
Objective List: 28.3 Evaluate how fiscal and monetary policy variables are used in the IS-LM
model
The situation in which expansionary fiscal policy does not lead to a rise in aggregate output is
referred to as ____.
A) fiscal neutrality
B) a recession
C) complete crowding out
D) inflation
Answer: C
Diff: 2 Type: MC Page Ref: 11
Skill: Recall
Objective List: 28.3 Evaluate how fiscal and monetary policy variables are used in the IS-LM
model
Crowding out will be more pronounced the closer to vertical is the ____.
A) IS curve
B) LM curve
C) consumption function
D) aggregate demand function
Answer: B
Diff: 2 Type: MC Page Ref: 11
Skill: Recall
Objective List: 28.3 Evaluate how fiscal and monetary policy variables are used in the IS-LM
model
The less interest-sensitive is money demand, the ____.
A) more effective is fiscal policy relative to monetary policy
B) more effective is monetary policy relative to fiscal policy
C) steeper is the IS curve
D) flatter is the LM curve
Answer: B
Diff: 2 Type: MC Page Ref: 12
Skill: Recall
Objective List: 28.3 Evaluate how fiscal and monetary policy variables are used in the IS-LM
model