When the demand for money depends only on real income,the resulting ________ LM curve causes fiscal policy to have a ________ effect on income.
A)vertical,very strong
B)vertical,zero
C)horizontal,very strong
D)horizontal,zero

Question

Quizplus · Accepted Answer

When the demand for money depends only on real income, the resulting LM curve is vertical. This means that changes in the money supply will not affect the interest rate, and thus will have no effect on investment or consumption. As a result, fiscal policy will have a zero effect on income.

When the Demand for Money Depends Only on Real Income,the