With an upward sloping LM curve, a falling interest rate __________ money demand, so that an expansionary monetary policy is __________ than in the case of a vertical LM curve.

Question

Quizplus · Accepted Answer

With an upward sloping LM curve, a falling interest rate raises money demand, which counteracts the expansionary effect of monetary policy. Therefore, an expansionary monetary policy will be weaker than in the case of a vertical LM curve where there is no change in money demand.

With an Upward Sloping LM Curve, a Falling Interest Rate