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How does interest elasticity of money demand influence the effectiveness of fiscal policy?

How does interest elasticity of money demand influence the effectiveness of fiscal policy?

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Answer - The interest elasticity of money demand is directly related to the effectiveness of fiscal policy. The grester the slope of money demand curve , more demand will be affected by change in interest rates , the more effevtive will be the fiscal policy.

If the demand for money will be inelastic , the fiscal policy will be ineffective. This is because the demand for the money will not change in response to interest rates and the slope of curve will be less. This will make the policy ineffective and slow.

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