Which of the following statements are true?
A)The smaller the responsiveness of money demand to a change in the interest rate,the steeper the LM curve.
B)The larger the responsiveness of money demand to a change in the interest rate,the flatter the LM curve.
C)If money demand is not responsive to a change in the interest rate,the LM curve will be horizontal.
D)Both A and B.

Question

Quizplus · Accepted Answer

The LM curve represents the relationship between the liquidity preference (money demand) and the money supply in an economy, plotted against interest rates and income. A smaller responsiveness of money demand to changes in interest rates means that changes in interest rates have less effect on the quantity of money demanded, leading to a steeper LM curve (A). Conversely, a larger responsiveness means that changes in interest rates significantly affect the quantity of money demanded, resulting in a flatter LM curve (B). Both statements A and B correctly describe the relationship between the responsiveness of money demand to interest rate changes and the slope of the LM curve.

Which of the Following Statements Are True