The LM curve slopes upward to the right because
A)the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets.
B)a higher real interest rate is associated with a higher level of the output gap in money market equilibrium.
C)a higher real interest rate is associated with a higher level of saving in goods market equilibrium.
D)in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate.

Question

Quizplus · Accepted Answer

The LM curve slopes upward because, in money market equilibrium, a higher real interest rate is needed to balance the increased demand for money that comes with a higher level of income or output.

The LM Curve Slopes Upward to the Right Because