If the Demand for Money Is Highly Sensitive to the Interest

question 30

Multiple Choice

If the demand for money is highly sensitive to the interest rate,

• A)the LM curve is relatively flat.
• B)the IS curve is relatively steep.
• C)the LM curve is relatively steep.
• D)investment spending will also be highly sensitive to the interest rate.

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Definitions:

Forward Contract

An agreement to buy or sell an asset at a future date at a price agreed upon today, often used to hedge against price movements.

Spot Rates

The current market price at which a particular asset can be bought or sold for immediate delivery and payment.

Fair Value Hedge

A type of hedge that protects against changes in the fair value of an asset, liability, or an unrecognized firm commitment, often due to changes in interest rates or other market variables.

Forward Contract

A financial derivative that represents a customized agreement to buy or sell an asset at a predetermined future date and price.