Starting from equilibrium in the ISLM framework, an increase in money demand results in

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An increase in money demand implies a decrease in the supply of real balances, making it more expensive for individuals to hold money. To offset this, individuals will seek to reduce their consumption and investment, which in turn will lower the demand for goods and services, leading to a decline in income. At the same time, a decrease in the money supply will lead to an increase in the interest rate, which will encourage saving and discourage borrowing, further reducing aggregate demand and income. Thus, both income and the interest rate will decline in response to an increase in money demand.

Starting from Equilibrium in the ISLM Framework, an Increase in Money