Which of the following best defines the LM curve?

Question

Quizplus · Accepted Answer

The LM curve shows the combinations of interest rates (i) and income (Y) that maintain equilibrium in financial markets, specifically the money market. It represents the different combinations of i and Y at which the demand for money equals the supply of money, which illustrates the equilibrium in the money market. Thus, option D is the correct answer. Option A is incorrect as it describes the IS curve, which shows the combinations of i and Y that maintain equilibrium in the goods market. Option B describes the investment demand curve, which is not the same as the LM curve. Option C is also incorrect as it describes the money demand curve, which is only a component of the LM curve.

Which of the Following Best Defines the LM Curve