In the case where the LM schedule is relatively steep and the IS schedule is relatively flat,the most effective policy would be a change in
A)money supply.
B)government expenditures.
C)government spending financed by a change in taxes.
D)taxes.

Question

Quizplus · Accepted Answer

A steep LM schedule implies that changes in interest rates have a larger effect on investment and output. Meanwhile, a flat IS schedule indicates that changes in government expenditures or taxes have a smaller effect on output. Therefore, the most effective policy would be a change in the money supply to influence interest rates and stimulate investment and output.

In the Case Where the LM Schedule Is Relatively Steep