Using the information in the diagram to answer the following question. Which of
ID: 1173857 • Letter: U
Question
Using the information in the diagram to answer the following question.
Which of the following statements concerning the diagram is TRUE?
A. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now less sensitive to changes in the interest rate.
B. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now more sensitive to changes in the interest rate.
C. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now more sensitive to changes in the interest rate.
D. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now less sensitive to changes in the interest rate.
E. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because a large decline in spending has occurred.
A. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now less sensitive to changes in the interest rate.
B. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now more sensitive to changes in the interest rate.
C. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now more sensitive to changes in the interest rate.
D. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now less sensitive to changes in the interest rate.
E. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because a large decline in spending has occurred.
The Interest Rate (Nominal and in Parentheses the Real) Steep IS Curve ?? 5% (3%) IS" ISo 0 Normal IS Curve Output in Trillions of Real DollarsExplanation / Answer
Ans is D
When IS rotates from its normal shape to steeply IS shape then monetary policy becomes less effective. Thus in steeper IS curve there will be lesser output change and more interest rate change. Also higher the senstiviteness of interest rate toward spending, flatter the IS curve and vice versa.
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