At __________ income levels on the LM curve, the interest rate must be __________.

Question

Quizplus · Accepted Answer

The LM curve represents the relationship between the liquidity preference (money demand) and money supply in the economy, holding the price level constant. At higher income levels, the demand for money increases because people want to hold more money for transactions. To maintain money market equilibrium, the interest rate must increase to balance the increased demand for money with the fixed money supply. Therefore, at higher income levels on the LM curve, the interest rate must be higher.

At __________ Income Levels on the LM Curve, the Interest