Match List - I with List - II.List-I: PropertyList-II: Type of Curve (A) Investment is unresponsive to…
In the usual income–interest-rate diagram, interest-insensitive investment makes goods-market equilibrium income insensitive to the interest rate, giving a vertical IS.…
Choose your answer
| List-I: Property | List-II: Type of Curve |
|---|---|
| (A) Investment is unresponsive to interest rates | (I) Relatively flat IS curve |
| (B) Money demand is perfectly elastic w.r.t. interest rates | (II) Vertical LM curve |
| (C) Money demand is completely inelastic w.r.t. interest rates | (III) Horizontal LM curve |
| (D) Investment is highly responsive to interest rates | (IV) Vertical IS curve |
Answer and explanation
Correct answer A
In the usual income–interest-rate diagram, interest-insensitive investment makes goods-market equilibrium income insensitive to the interest rate, giving a vertical IS. Perfectly interest-elastic money demand gives horizontal LM; interest-inelastic money demand gives vertical LM. High interest sensitivity of investment gives a relatively flat IS. Hence A–IV, B–III, C–II, D–I, the listed alternative. The remaining mappings reverse or confuse these sensitivities. (A)-(IV), (B)-(III), (C)-(II), (D)-(I) (A)-(IV), (B)-(II), (C)-(III), (D)-(I) (A)-(I), (B)-(III), (C)-(II), (D)-(IV) (A)-(III), (B)-(IV), (C)-(I), (D)-(II)
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UGC NET Economics