Other things equal, a given change in government spending has a larger effect on demand the:
A) flatter the LM curve.
B) steeper the LM curve.
C) smaller the interest sensitivity of money demand.
D) larger the income sensitivity of money demand.

Question

Quizplus · Accepted Answer

A flatter LM curve indicates that the interest rate is less sensitive to changes in income, meaning that fiscal policy (like government spending) will have a larger effect on demand because it won't be offset as much by changes in interest rates.

Other Things Equal, a Given Change in Government Spending Has