In the basic closed-economy ISLM model,as the interest sensitivity of investment spending increases,fiscal policy has ________ effect on output and monetary policy has ________ effect on output.
A)less;less
B)more;more
C)more;less
D)less;more

Question

Quizplus · Accepted Answer

As the interest sensitivity of investment spending increases, fiscal policy becomes less effective because changes in interest rates have a larger impact on investment, crowding out the effects of fiscal policy. Conversely, monetary policy becomes more effective because changes in interest rates lead to larger changes in investment spending, thus having a greater impact on output.

In the Basic Closed-Economy ISLM Model,as the Interest Sensitivity of Investment