A shift in the LM curve to the left could be caused by

Question

Quizplus · Accepted Answer

The LM curve represents the relationship between the liquidity preference (demand for money) and the money supply in the economy at different levels of income and interest rates. A shift to the left in the LM curve can be caused by factors that reduce the supply of money or increase the demand for money at any given interest rate. An increase in the price level (A) raises the demand for money for transaction purposes. A decrease in the money supply (B) directly reduces the amount of money available in the economy. An increase in the precautionary demand for money (C) raises the overall demand for money. All these factors (A, B, C) lead to a leftward shift in the LM curve, making D the correct answer.

A Shift in the LM Curve to the Left Could