An increase in the demand for money causes a shift of the demand for money curve to the right and a movement along the LM curve reflecting a higher interest rate and level of national income.

Question

Quizplus · Accepted Answer

An increase in the demand for money means that people want to hold onto more money, which means they will deposit less money in banks. This will reduce the supply of money, leading to a higher interest rate, which is reflected by a movement along the LM curve. The increase in demand for money will shift the demand for money curve to the right as people want to hold more money at every level of interest rates. This will lead to an increase in the equilibrium interest rates and national income level.

An Increase in the Demand for Money Causes a Shift