In deriving LM curves,holding the real money supply constant while raising real GDP causes us to
A)trace up along an LM curve.
B)trace down along an LM curve.
C)shift the LM curve to the right.
D)shift the LM curve to the left.

Question

Quizplus · Accepted Answer

Holding the real money supply constant means that the interest rate remains the same. Therefore, an increase in real GDP leads to an increase in the demand for money, which results in the interest rate rising to equilibrate the money market. This increase in the interest rate causes a movement up along the existing LM curve.

In Deriving LM Curves,holding the Real Money Supply Constant While