SOLVED

11) When the economy is in the liquidity trap, the A) LM curve is horizontal. B) LM curve is vertical. C) IS curve is horizontal. D) IS curve is vertical. 12) Fiscal policy is most effective when A) the LM curve is vertical. B) the LM curve is horizontal. C) the LM curve is positively sloped. D) the LM curve is negatively sloped. 13) If investment is interest-insensitive, A) monetary policy has no impact on equilibrium income. B) monetary policy has no impact on the equilibrium interest rate. C) fiscal policy has no impact on equilibrium income. D) fiscal policy has no impact on the equilibrium interest rate. 14) If investment becomes more interest-sensitive, A) monetary policy will have a smaller impact on the equilibrium interest rate. B) monetary policy will have a greater impact on equilibrium income. C) fiscal policy will have a smaller impact on equilibrium income. D) fiscal policy will have a larger impact on the equilibrium interest rate. 15) Monetary policy has no effect on equilibrium income when the A) LM curve is positively sloped. B) IS curve is negatively sloped. C) IS curve is vertical. D) IS curve is horizontal. 16) A vertical LM curve means that A) monetary policy has no impact on the interest rate. B) monetary policy has no impact on income. C) fiscal policy has no impact on the interest rate. D) fiscal policy has no impact on income. 17) If you believe that the LM curve is horizontal, what type of policy would you recommend to stimulate the economy? A) An increase in government spending B) A reduction in government spending C) An increase in the money supply D) A reduction in the interest rate 18) If you believe that the LM curve is vertical, what type of policy would you recommend to stimulate the economy? A) An increase in government spending B) A reduction in government spending C) An increase in the money supply D) A reduction in the interest rate 19) The expenditure multiplier is smallest when the A) LM curve is positively sloped. B) LM curve is horizontal. C) IS curve is vertical. D) LM curve is vertical. 20) The expenditure multiplier is greatest when the A) LM curve is positively sloped. B) LM curve is horizontal. C) IS curve is vertical. D) LM curve is vertical.