Question

If the LM curve is vertical and government spending rises by G, in the IS–LM analysis, then equilibrium income rises by:

Answer 1

The equilibrium income will not change.

Step-by-step explanation:

LM curve shows the liquidity preference and money supply, It represents the money market. It is generally an upward sloping curve showing a positive relationship between interest rates and income.

Vertical LM curve shows that demand and supply of money are constant at a given income level. So, with the increase in government spending, only the interest rates will be affected. The equilibrium income level will remain the same.