Question

Which of the following statements is NOT correct under the IS-LM (Fixed Price) model?

Q: Answer-Which of the following statements is NOT correct under the IS-LM (Fixed Price) model?

When the interest responsiveness of the demand for money is low, the LM curve is steep, meaning that changes in the money supply have a larger impact on Income. However, this statement suggests that monetary policy has a weak effect on income, which contradicts this explanation.

A The LM curve represents the combinations of income and interest rate, where money market is in equilibrium.

B The IS curve represents the combinations of income and interest rate, where product market (goods and services) is in equilibrium.

C An increase in money supply raises income and reduces interest rate when the IS curve has negative slope and the LM curve has positive slope.

D Monetary policy has a relatively weak effect on income when the interest responsiveness of the demand for money is relatively low.

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Which of the following statements is NOT correct under the IS-LM (Fixed Price) model?

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