If Money Demand Becomes More Sensitive to Changes in Income

question 44

Multiple Choice

If money demand becomes more sensitive to changes in income, then

• A)the LM-curve will become flatter
• B)the LM-curve will become steeper
• C)the AD-curve will become flatter
• D)fiscal policy will be more effective
• E)both B and C

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Definitions:

Differential Cost

The difference in cost between two alternative decisions or changes in output levels.

Sunk Cost

Sunk cost represents money already spent and permanently lost, which cannot be recovered and should not influence future financial decisions.

Differential Cost

Refers to the difference in total cost that will result from selecting one option over another in decision-making situations.

Differential Revenue

The difference in revenue generated under two different scenarios or courses of action.