If the LM Curve Were Vertical, Then an Increase in Government

question 53

Multiple Choice

If the LM curve were vertical, then an increase in government spending or a reduction in taxes would

• A) do nothing but increase GDP and leave interest rates fixed.
• B) do nothing but increase interest rates, so that the resulting reduction in investment would exactly cancel the stimulative effects of either fiscal policy.
• C) increase interest rates a bit but still generate some small increase in GDP.
• D) stimulate growth in GDP only if it were accompanied by an increase in the money supply.
• E) none of the above.

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Definitions:

Political Developments

Changes or progress in the field of politics, including shifts in government, policy making, or the introduction of new political ideas and movements.

Progressives

A political and social reform movement in the late 19th and early 20th centuries that aimed to address issues stemming from industrialization, urbanization, and corruption, advocating for improvements in democracy, working conditions, and social justice.

Foreign Affairs

Matters relating to the relationships between countries, including diplomacy, trade, and security issues.

Frederick C. Howe

An influential American sociologist, political reformer, and public administrator known for his work in urban reform and sociology in the early 20th century.