Discussion
If investment becomes totally interest insensitive, then :
Answer: B
If investment is totally interest-insensitive, fiscal policy is effective.
When investment does not respond to the interest rate, the IS curve is vertical. Monetary policy works by changing the interest rate, which now has no effect on spending, so shifting the LM curve leaves income unchanged. Fiscal policy shifts the vertical IS curve directly, and there is no crowding out of investment, so income changes by the full multiplier.
That rules out the options saying fiscal policy is ineffective or that monetary policy is effective, and the option calling both ineffective.
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