Given the investment function, I = f - hr, as the interest sensitivity of investment falls, that is as h falls, the IS curve gets A

ANSWER: D. steeper but shifts less when government spending increases.

IS curve represents the relationship between interest rate and output level where the goods market is in equilibrium, which means aggregate demand equals national product. It is represented by the equation;

I = f - hr

where, I = Investment
f = Autonomous investment
r = interest rate
h = Interest sensitivity factor

As Interest sensitivity of investment i.e h falls it means that investment will be low sensitive to the interest rate. Which means when interest rate falls it will cause very small increase in output level. Hence the IS curve will be steeper.

As government spending increases, it means that IS curve will shift rightwards as the interest sensitivity of investment is low, the shift in IS curve will also be less. So, the curve will shift less as government spending increases.