Which of the following would make the LM curve flatter in space?
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2 marks, −0.666666666666667MacroeconomicsIS-LM modelDeriving the LM curve and its slopeModerateabout 3 min
DSE 2017 Question 49: IS-LM model
Answer and worked solution
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Plain-text version
Which of the following would make the LM curve flatter in (Y,r) space? (A) An increase in the income sensitivity of money demand (B) An increase in the interest sensitivity of planned investment (C) An increase in the marginal propensity to consume (D) An increase in the interest sensitivity of money demand
IS-LM model has come up 137 times in 7 exams since 2004.
What this question tests
This question is on Deriving the LM curve and its slope, part of IS-LM model in Macroeconomics.
How money market equilibrium gives an upward-sloping relation between interest rate and income.
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Question from the DSE 2017 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.