An explanation for the slope of the LM curve is that as:
A) the interest rate increases, income becomes higher.
B) the interest rate increases, income becomes lower.
C) income rises, money demand rises, and a higher interest rate is required.
D) income rises, money demand rises, and a lower interest rate is required.

Question

Quizplus · Accepted Answer

As income rises, people demand more money for transactions and savings purposes, causing an increase in the demand for money. To maintain equilibrium in the money market, the interest rate has to increase to encourage people to supply more money. Therefore, the slope of the LM curve is positive, indicating an increase in interest rate with an increase in income.

An Explanation for the Slope of the LM Curve Is