Monetary policy loses its effectiveness in all of the following situations EXCEPT
A)when the IS curve is vertical.
B)when the LM curve is nearly horizontal.
C)when interest rate controlled by the Fed reaches zero.
D)when the IS curve is horizontal.

Question

Quizplus · Accepted Answer

Monetary policy is ineffective when the IS curve is vertical because changes in interest rates do not affect output. However, when the IS curve is horizontal, monetary policy can still be effective as changes in interest rates can influence output.

Monetary Policy Loses Its Effectiveness in All of the Following