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In equilibrium: Money supply = Money demand.

Summarizing it, we can explain the upward sloping LM curve as following:

If income is high then the

demand for money will be high relative to the fixed supply. In order to equilibrate money demand and money supply, interest rates have to also be high to reduce money demand

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14y ago

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Related Questions

What direction does the supply curve slope from the left to right?

Supply curves do not always slope from left to right. A supply curve can slope from the right and when this happens this means that there is a surplus of goods at a lower price.


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The slope of the LM curve is determined by the responsiveness of the demand for money to changes in interest rates, which is influenced by the liquidity preference of individuals and businesses. Specifically, a steeper LM curve indicates that money demand is less sensitive to interest rate changes, while a flatter curve suggests greater sensitivity. Factors such as income levels, expectations about future economic conditions, and the overall liquidity of the financial system also play significant roles in shaping the slope. Ultimately, the LM curve reflects the relationship between the real money supply and interest rates in the economy.


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