When the interest sensitivity of the demand for real money balances is low,
A)the LM curve is relatively flat.
B)the IS curve is relatively steep.
C)the LM curve is relatively steep.
D)investment spending will also not be sensitive to the interest rate.

Question

Quizplus · Accepted Answer

When the interest sensitivity of the demand for real money balances is low, it means that changes in the interest rate have a small effect on the quantity of real money balances that people wish to hold. This leads to a relatively steep LM curve because a significant change in the interest rate is required to bring the money market into equilibrium following a change in income.

When the Interest Sensitivity of the Demand for Real Money