Which of the following statements would be true for an economy that can be characterized as being to the right of its LM curve?
A)There is excess supply of money.
B)There is excess demand for money.
C)There will be a tendency for the level of output to increase.
D)There will be a tendency for the interest rate to decrease.

Question

Quizplus · Accepted Answer

DBeing to the right of the LM curve indicates that at the current interest rate, the demand for money exceeds the supply, leading to an excess demand for money (B). To restore equilibrium, the interest rate will tend to increase, not decrease, to reduce the demand for money. However, the increase in interest rates is not directly stated, making D incorrect in the context of traditional LM curve analysis. My previous explanation mistakenly suggested D as a correct choice due to a misinterpretation of the interest rate movement's direction. The correct interpretation should focus solely on the condition of excess demand for money when positioned to the right of the LM curve, which is accurately captured by choice B.

Which of the Following Statements Would Be True for an Economy