The liquidity preference and money supply equilibrium (L(R,Y)) schedule shows the combinations of interest rates and real GDP where the money market is in equilibrium. Changes in interest rates will cause movements along the L(R,Y) schedule, but changes in real GDP will cause shifts in the L(R,Y) schedule. Therefore, for a given level of real GDP, changes in interest rates will only cause movements along the L(R,Y) schedule.

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For a Given Level of

Question 11

Multiple Choice

For a given level of

A) nominal GNP, changes in interest rates cause movements along the L(R,Y) schedule.
B) real GNP, changes in interest rates cause a decrease of the L(R,Y) schedule.
C) real GNP, changes in interest rates cause an increase of the L(R,Y) schedule.
D) nominal GNP, changes in interest rates cause an increase in the L(R,Y) schedule.
E) real GNP, changes in interest rates cause movements along the L(R,Y) schedule.

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