The LM curve connects points where the money market is in equilibrium and the demand for money is equal to the supply of money at different interest rates.

Question

Quizplus · Accepted Answer

This statement is true. The LM curve reflects the relationship between interest rates and the level of income and output that generates equilibrium in the money market. At each point on the curve, the quantity of money demanded is equal to the quantity of money supplied, and the interest rate that clears the market is determined.

The LM Curve Connects Points Where the Money Market Is