The LM curve shows combinations of ______ that are consistent with equilibrium in the market for real money balances.
A) inflation and unemployment
B) the price level and real output
C) the interest rate and the level of income
D) the interest rate and real money balances

Question

Quizplus · Accepted Answer

The LM curve shows combinations of the interest rate and the level of income that are consistent with equilibrium in the market for real money balances. The curve is upward sloping as higher levels of income will result in higher demand for money balances and, therefore, a higher interest rate is required to maintain equilibrium.

The LM Curve Shows Combinations of ______ That Are Consistent