Fiscal policy is impotent when the LM curve is

Question

Quizplus · Accepted Answer

When the LM curve is vertical, changes in fiscal policy, such as changes in government spending or taxes, will not have any effect on output or interest rates. This is because the LM curve represents the equilibrium in the money market, where interest rates adjust to ensure that money supply equals money demand. When the curve is vertical, the equilibrium interest rate is fixed regardless of changes in the level of output or income. Therefore, fiscal policy becomes impotent in influencing the economy.

Fiscal Policy Is Impotent When the LM Curve Is