The slope of the LM curve will be flatter the __________ is the income-sensitivity of the demand for money and the __________ is the interest-sensitivity of the demand for money.

Question

Quizplus · Accepted Answer

The slope of the LM curve will be flatter if the income-sensitivity of the demand for money is less (meaning money demand is less responsive to changes in income) and the interest-sensitivity of the demand for money is greater (meaning money demand is more responsive to changes in interest rates). This is because a flatter LM curve indicates that a given change in interest rates leads to a larger change in income, which is consistent with a high interest-sensitivity and low income-sensitivity of money demand.

The Slope of the LM Curve Will Be Flatter the __________