Refer to the following figure when answering the following questions.
Figure 11.3: IS Curve
-Consider Figure 11.3. If investment is infinitely interest rate sensitive, the economy would be characterized by:

Question

Refer to the following figure when answering the following questions.
Figure 11.3: IS Curve

-Consider Figure 11.3. If investment is infinitely interest rate sensitive, the economy would be characterized by:

Quizplus · Accepted Answer

If investment is infinitely interest rate sensitive, it means that any change in interest rate will have a large impact on investment demand. Therefore, the IS curve would be very steep, as shown in Figure 11.3. In this case, the equilibrium point would be at intersection of ISS1U1 and B12S1U1, indicating a low level of output and a high interest rate. Therefore, the correct answer is choice C, IS₂.

Refer to the Following Figure When Answering the Following Questions