The size of the money multiplier is larger in the Keynesian IS-LM model, if
Greater interest elasticity of investment demand increases the monetary-policy income multiplier in the IS-LM model. A fall in the interest rate then stimulates a larger…
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The size of the money multiplier is larger in the Keynesian IS-LM model, if
Answer and explanation
Correct answer B
Greater interest elasticity of investment demand increases the monetary-policy income multiplier in the IS-LM model. A fall in the interest rate then stimulates a larger increase in investment and aggregate income. Greater interest elasticity of money demand instead absorbs more of the monetary expansion into money holdings, weakening the income response.
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West Bengal SET (WB SET)