Other things equal, a given change in money supply has a larger effect on demand the:

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Question restatement: The prompt asks, all else equal, when does a given change in the money supply have a larger effect on aggregate demand?
Option 1: flatter the IS curve. This is the correct line of reasoning. A flatter IS curve means that for a given change in the interest rate, the investment component of demand responds more strongly to changes in the real interest rate, amplifying the total effect of a monetary policy change on aggregate demand.
Option 2: steeper the IS curve. A steeper IS curve implies that changes in the interest rate have a smaller impact on spending, so the same money-supply change would have a smaller effect on demand, not larger. This makes this option incorrect in describing when the effect is larger.
Option 3: smaller the interest sensitivity of expenditure demand. If investment and other components of expenditure were less sensitive to the interest rate, a monetary expansion would spur less additional spending, reducing the effect on demand. This contradicts the condition for a larger effect, so it is not correct.
Option 4: larger the income sensitivity of money demand. Higher income sensitivity of money demand affects how much money people want to hold in response to income, but it primarily influences money demand behavior rather than the responsiveness of aggregate demand to a given money-supply change through the IS-LM mechanism. This option describes a different channel and does not directly explain a larger effect on demand from a money-supply shock in the standard IS-LM framework.
In summary, the key factor that magnifies the impact of a monetary policy change on aggregate demand in the IS-LM model is the slope of the IS curve: a flatter IS curve increases the responsiveness of investment and hence overall demand to interest-rate changes caused by money-supply changes, making option 1 the correct choice.

BU.220.610.51.FA25 M8 Final Comprehensive Exam - Multiple Choice Questions- Requires Respondus LockDown Browser

Other things equal, a given change in money supply has a larger effect on demand the:

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BU.220.610.51.FA25 M8 Final Comprehensive Exam - Multiple Choice Questions- Requires Respondus LockDown Browser

Other things equal, a given change in money supply has a larger effect on demand the:

View Explanation

Log in for full answers

Similar Questions

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output [ Select ] .

The IS curve shifts when any of the following economic variables change except:

When the LM curve is drawn, the quantity that is held fixed is:

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will __, shifting the ____ curve to the right and returning output to the natural level.

In the IS-LM model, a decrease in government purchases leads to a(n) ______ in planned expenditures, a(n) ______ in total income, a(n) ______ in money demand, and a(n) ______ in the equilibrium interest rate.

According to the IS-LM model, if Congress raises taxes but the Fed wants to hold income constant, then the Fed must ______ the money supply.

An increase in the money supply shifts the __ curve to the right, and the aggregate demand curve ____.

The tax decrease makes the interest rate ______ and investment ______ in this model.

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will , shifting the __ curve to the right and returning output to the natural level.

In the IS-LM model, a decrease in government purchases leads to a(n) in planned expenditures, a(n) in total income, a(n) in money demand, and a(n) in the equilibrium interest rate.

An increase in the money supply shifts the curve to the right, and the aggregate demand curve __.

The tax decrease makes the interest rate and investment in this model.