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.

Question

Quizplus · Accepted Answer

If money demand is less interest-sensitive, then changes in interest rates will have less of an impact on the quantity of money demanded. This means that monetary policy (which often involves changes in interest rates) will be less effective. However, fiscal policy (which involves changes in government spending and taxation) will still be effective in influencing the overall level of economic activity. Thus, monetary policy is relatively less effective compared to fiscal policy when money demand is less interest-sensitive.

The Less Interest-Sensitive Is Money Demand,the