Against which LM curve listed here does a change in goods market spending have the greatest impact in moving GDP around in the short run?
A) A vertical LM curve
B) A steeply sloped LM curve
C) A gently sloped LM curve
D) A horizontal LM curve
E) Not determinable from the information provided

Question

Quizplus · Accepted Answer

A horizontal LM curve implies that the interest rate is fixed regardless of changes in income, meaning that monetary policy is accommodating any level of income or output. Therefore, changes in goods market spending (fiscal policy) will have the greatest impact on GDP in the short run, as monetary policy will not counteract these changes.

Against Which LM Curve Listed Here Does a Change in Goods