The IS curve would be vertical if
A)the government's budget was balanced.
B)autonomous expenditures were insensitive to the interest rate.
C)the demand for money was insensitive to the interest rate.
D)the government increased the money supply.

Question

Quizplus · Accepted Answer

The IS curve represents the equilibrium points in the goods market, where output (Y) equals expenditure (E). The interest rate (i) is the price at which investment expenditure adjusts to clear the goods market. If the autonomous expenditures (investment, government spending, exports, and imports) are insensitive to the interest rate, changes in the interest rate would have no effect on the equilibrium level of output, and the IS curve would be vertical.

The IS Curve Would Be Vertical If