Suppose net exports were to become less sensitive to changes in the interest rate. You would then draw
A) flatter IS and aggregate demand curves.
B) flatter LM and aggregate demand curves.
C) a flatter IS curve and a correspondingly steeper aggregate demand curve.
D) steeper IS and aggregate demand curves.
E) a steeper IS curve and a correspondingly flatter aggregate demand curve.

Question

Quizplus · Accepted Answer

If net exports become less sensitive to interest rate changes, the IS curve becomes steeper because changes in the interest rate have less effect on output. Consequently, the aggregate demand curve also becomes steeper.

Suppose Net Exports Were to Become Less Sensitive to Changes