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1.Assume an IS/LM model of a closed economy. If the demand for money is extremely responsive (assume infinite) to interest rates, then the slope of

1.Assume an IS/LM model of a closed economy. If the demand for money is extremely responsive (assume infinite) to interest rates, then the slope of the demand curve would be perfectly (vertical/horizontal) , and an increase in money supply would (increase/decrease/not change) the interest rate.

Hence, the LM curve would be perfectly (vertical/horizontal). This expansionary monetary policy would (shift/not shift) the LM curve, and income would (increase/decrease/not change).

*Answer the 4 questions above by picking one of the choices that are bolded and underlined.

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