Question

    Which of the following statements is NOT correct under

    the IS-LM (Fixed Price) model?
    A The LM curve represents the combinations of income and interest rate, where money market is in equilibrium. Correct Answer Incorrect Answer
    B The IS curve represents the combinations of income and interest rate, where product market (goods and services) is in equilibrium. Correct Answer Incorrect Answer
    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. Correct Answer Incorrect Answer
    D Monetary policy has a relatively weak effect on income when the interest responsiveness of the demand for money is relatively low. Correct Answer Incorrect Answer

    Solution

    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.

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