Economics · Macroeconomics (IS-LM Model)
Regarding the extreme cases of IS-LM, consider: 1. When money demand is perfectly interest elastic (liquidity trap), the LM curve is horizontal. 2. When investment is perfectly interest inelastic, the IS curve is vertical. 3. When money demand is perfectly interest inelastic (classical range), the LM curve is vertical. Which of the above are correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 11 and 2 only
- 22 and 3 only
- 31, 2 and 3✓
- 41 and 3 only
Correct answer
1, 2 and 3
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