2. Determine whether each of the following statements in true or false, and expl

Question

2. Determine whether each of the following statements in true or false, and explain why. For each true statement, discuss whether there is anything unusual about the impact of money and fiscal policy in that special case.

a) If investment does not depend on the interest rate, the LM curve is horizontal.

b) If investment does not depend on the interest rate, the IS curve is vertical.

c) If money demand does not depend on the interest rate, the IS curve is horizontal.

d) If money demand does not depend on the interest rate, the LM curve is vertical.

e) If money demand does not depend on income, the LM curve is horizontal.

f) If money demand is extremely sensitive to the interest rate, the LM curve is horizontal.

Explanation / Answer

The statements which are True are as follows:

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