From any point above the current LM curve,money market equilibrium can be restored by some combination of a ________ income and a ________ interest rate.
A)higher,higher
B)higher,lower
C)lower,higher
D)lower,lower

Question

Quizplus · Accepted Answer

From any point above the current LM curve, to restore money market equilibrium, income must increase and interest rates must decrease. This is because a point above the LM curve indicates an excess demand for money. Increasing income raises the demand for transactions money, while decreasing interest rates reduces the demand for speculative money, thus restoring equilibrium.

From Any Point Above the Current LM Curve,money Market Equilibrium