In deriving an LM curve,higher incomes shift the money demand schedule to the ________,yet the unchanged real money supply continues to be equally demanded so long as the interest rate ________.
A)right,rises
B)right,falls
C)left,rises
D)left,falls

Question

Quizplus · Accepted Answer

Higher incomes lead to higher transactions demand for money, which shifts the money demand curve to the right. Since the real money supply is fixed, the equilibrium interest rate must rise to equate the demand for and supply of real money balances. Thus, the LM curve shifts to the right.

In Deriving an LM Curve,higher Incomes Shift the Money Demand