An LM curve shows combinations of:
A) taxes and government spending.
B) nominal money balances and price levels.
C) interest rates and income, which bring equilibrium in the market for real money balances.
D) interest rates and income, which bring equilibrium in the market for goods and services.

Question

Quizplus · Accepted Answer

The LM curve represents the equilibrium in the market for real money balances, which is determined by the intersection of the demand for real money balances (related to income) and the supply of real money balances (related to interest rates). Therefore, the LM curve shows combinations of interest rates and income (not taxes and government spending or nominal money balances and price levels), which bring equilibrium in the market for real money balances (not goods and services).

An LM Curve Shows Combinations Of