Other things equal, a given change in money supply has a larger effect on demand the:

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BlackTom AI · Accepted Answer

Question restatement: The prompt asks, all else equal, when does a given change in the money supply have a larger effect on aggregate demand?
Option 1: flatter the IS curve. This is the correct line of reasoning. A flatter IS curve means that for a given change in the interest rate, the investment component of demand responds more strongly to changes in the real interest rate, amplifying the total effect of a monetary policy change on aggregate demand.
Option 2: steeper the IS curve. A steeper IS curve implies that changes in the interest rate have a smaller impact on spending, so the same money-supply change would have a smaller effect on demand, not larger. This makes this option incorrect in describing when the effect is larger.
Option 3: smaller the interest sensitivity of expenditure demand. If investment and other components of expenditure were less sensitive to the interest rate, a monetary expansion would spur less additional spending, reducing the effect on demand. This contradicts the condition for a larger effect, so it is not correct.
Option 4: larger the income sensitivity of money demand. Higher income sensitivity of money demand affects how much money people want to hold in response to income, but it primarily influences money demand behavior rather than the responsiveness of aggregate demand to a given money-supply change through the IS-LM mechanism. This option describes a different channel and does not directly explain a larger effect on demand from a money-supply shock in the standard IS-LM framework.
In summary, the key factor that magnifies the impact of a monetary policy change on aggregate demand in the IS-LM model is the slope of the IS curve: a flatter IS curve increases the responsiveness of investment and hence overall demand to interest-rate changes caused by money-supply changes, making option 1 the correct choice.

Other things equal, a given change in money supply has a larger effect on demand the:Single choice

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