Economics Q101

0. Which of the following best describes the relationship depicted by the LM curve?

  • Option : A
  • Explanation : The LM curve shows an upward sloping relationship between i and Y. The increase in income causes the demand for money to increase. However, the money supply is unaffected by the increase in income. The only way that money demand and money supply can be equal again is if interest rates also increase to reduce money demand.
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