Along an LM curve at higher interest rates there is __________ money demanded, so income must be higher to __________ the demand for transactions balances if the total demand for money is to equal the fixed supply.

Question

Quizplus · Accepted Answer

Along an LM curve, as interest rates increase, the demand for money decreases. Therefore, to maintain the total demand for money equal to the fixed supply, income must increase to increase the demand for transactions balances. Hence, money demanded is less, and income must be increased to meet the demand, as stated in option B.

Along an LM Curve at Higher Interest Rates There Is