Suppose that the LM curve is vertical. This implies that: a. output depends on neither government...

Suppose that the LM curve is vertical. This implies that:

	a.	output depends on neither government spending nor the money supply
	b.	output depends only on the money supply
	c.	output depends on both government spending and the money supply
	d.	output depends only on government spending

Solutions

Expert Solution

When the LM curve is vertical, it implies that change in the IS curve will not affect the output level in the economy and it will only lead to change in the interest-rate, therefore, the right answer is option b, that is, output depends only on the money supply. As money supply curve will shift the LM curve to the right or the left depending on the type of the monetory policy.

Rahul Sunny answered 1 year ago

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