Other things equal, a fall in the marginal propensity to save will make the IS curve __________, and a rise in the responsiveness of short-term international financial capital To changes in the interest rate will make the BP curve __________.
A) flatter of more elastic; flatter or more elastic
B) flatter or more elastic; steeper or less elastic
C) steeper or less elastic; flatter or more elastic
D) steeper or less elastic; steeper or less elastic

Question

Quizplus · Accepted Answer

A fall in the marginal propensity to save will make the IS curve flatter or more elastic because it will lead to an increase in consumption and a decrease in saving at each level of income. A rise in the responsiveness of short-term international financial capital to changes in the interest rate will make the BP curve flatter or more elastic because it will lead to an increase in the supply of foreign capital at each level of the interest rate.

Other Things Equal, a Fall in the Marginal Propensity to Save