If investment does not depend on the interest rate, then the ______ curve is ______.
A) IS; vertical
B) IS; horizontal
C) LM; vertical
D) LM; horizontal

Question

Quizplus · Accepted Answer

The investment in this case does not depend on the interest rate, so the IS curve (which shows the relationship between interest rates and output) will be vertical, indicating that output remains constant regardless of the interest rate. The LM curve shows the relationship between interest rates and the demand for money, which is not relevant to this scenario.

If Investment Does Not Depend on the Interest Rate, Then