In the context of IS-LM framework, which of the following statements is false?
A. IS curve is steeper, the lower the value of the Keynesian multiplier and the lower the interest sensitiveness of investment demand.
B. Crowding out is effective when money demand is perfectly interest inelastic and investment is perfectly interest elastic.
C. The fiscal policy is least effective and the monetary policy is most effective, the higher the interest sensitiveness of money demand and the lower the interest sensitiveness of investment demand.
D. The Pigou effect restores the effectiveness of monetary policy even under the liquidity trap.
Answer:C
In the context of IS-LM framework, which of the following statements is false?
A. IS curve is steeper, the lower the value of the Keynesian multiplier and the lower the interest sensitiveness of investment demand. B. Crowding out is effective when money demand is perfectly interest inelastic and investment is perfectly interest elastic. C. The fiscal policy is least effective and the monetary policy is most effective, the higher the interest sensitiveness of money demand and the lower the interest sensitiveness of investment demand. D. The Pigou effect restores the effectiveness of monetary policy even under the liquidity trap.