Everything else held constant,if aggregate output is to the left of the LM curve,then there is an excess ________ of money which will cause the interest rate to ________.
A)supply;fall
B)supply;rise
C)demand;fall
D)demand;rise

Question

Quizplus · Accepted Answer

When aggregate output is to the left of the LM curve, it means that the quantity of money demanded exceeds the quantity of money supplied at the prevailing interest rate. This creates an excess demand for money, which will cause the interest rate to fall. As the interest rate falls, it will encourage investment and consumption, leading to an increase in aggregate output and a shift along the LM curve.

Everything Else Held Constant,if Aggregate Output Is to the Left