The slope of the LM curve has been shown to depend most crucially on the interest elasticity of
A)consumption.
B)saving.
C)money demand.
D)investment.

Question

Quizplus · Accepted Answer

The slope of the LM curve, which represents the relationship between the interest rate and the level of income that equates the demand for and supply of money, depends most crucially on the interest elasticity of money demand. This is because the LM curve is derived from the money market equilibrium where the demand for money is a function of the interest rate and income level. The more interest-elastic the demand for money is, the flatter the LM curve will be, indicating that a small change in the interest rate will lead to a large change in income.

The Slope of the LM Curve Has Been Shown to Depend