An autonomous rise in ________ shifts the LM curve to the ________,everything else held constant.
A)net exports;right
B)net exports;left
C)money demand;right
D)money demand;left

Question

Quizplus · Accepted Answer

An autonomous rise in money demand (such as an increase in demand for money as a store of value or precautionary motive) will shift the LM curve to the left, as shown in the basic Keynesian model where the interest rate has to rise to restore equilibrium in the money market. This can be seen in the equation for the LM curve: M/P = L(r,Y) where an increase in money demand (L) at a given level of output (Y) will raise the interest rate (r) needed to equate the supply and demand for money (M/P). The other choices are not accurate as an autonomous rise in net exports (A) would shift the IS curve to the right not the LM curve, while an autonomous rise in money demand (B) would shift the LM curve to the left not the right, and an autonomous rise in net exports (C) would not directly affect the LM curve as it is determined by the money market not the goods market.

An Autonomous Rise in ________ Shifts the LM Curve to the ________,Everything

An Autonomous Rise in Shifts the LM Curve to the ,Everything