In a binding situation, the AD curve is vertical.

Name: In a binding situation, the AD curve is vertical.
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In a binding situation, the interest rates are at their lower bound, which means that monetary policy cannot lower them any further. In this case, the AD curve becomes vertical as an increase in money supply will not lead to a reduction in interest rates and thus, will not stimulate aggregate demand.

In a Binding Situation, the AD Curve Is Vertical