The LM curve will shift to the
A)left if the price level falls and the quantity of money is held constant.
B)right if the price level rises and the quantity of money is held constant.
C)left if the price level is held constant and the quantity of money rises.
D)right if the price level falls and/or the quantity of money rises.

Question

Quizplus · Accepted Answer

The LM curve represents the relationship between the liquidity preference (demand for money) and the money supply in the economy, holding the interest rate constant. If the price level falls or the quantity of money in the economy increases, the real money supply (the quantity of money adjusted for price level) increases. This makes more money available for lending, reducing interest rates, and shifting the LM curve to the right.

The LM Curve Will Shift to the