If autonomous spending does not respond to changes in the interest rate, the resulting ________ IS curve implies that an economy ________ self-correct.
A) horizontal, will instantly
B) horizontal, can fail to
C) vertical, will instantly
D) vertical, can fail to

Question

Quizplus · Accepted Answer

A vertical IS curve implies that changes in the interest rate do not affect output, indicating that the economy may not self-correct through interest rate adjustments.

If Autonomous Spending Does Not Respond to Changes in the Interest