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What is the role of the LM curve in the IS-LM model?
- a)It represents the equilibrium between investment and savings.
- b)It illustrates the relationship between income and output.
- c)It shows the equilibrium between money supply and money demand.
- d)It depicts the relationship between exports and imports.
Correct answer is option 'C'. Can you explain this answer?
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What is the role of the LM curve in the IS-LM model?a)It represents th...
The LM curve in the IS-LM model represents the equilibrium between the money supply and money demand in an economy. Here's how it plays a role in the model:
Relationship between Money Supply and Money Demand:
The LM curve shows the combinations of interest rates and income levels where the money supply equals the money demand. It illustrates how changes in income levels affect the demand for money and consequently the interest rates in the economy.
Equilibrium in the Money Market:
The LM curve helps in determining the equilibrium in the money market by showing where the supply of money provided by the central bank matches the demand for money by individuals and businesses. This equilibrium point influences interest rates in the economy.
Impact on Aggregate Demand:
Changes in the money supply, represented by shifts in the LM curve, can have an impact on aggregate demand. For example, an increase in the money supply may lead to lower interest rates, which can stimulate investment and consumption, ultimately boosting aggregate demand.
Interaction with the IS curve:
The LM curve works in conjunction with the IS curve in the IS-LM model to determine the equilibrium levels of income and interest rates in the economy. Together, these two curves provide a framework for analyzing the effects of monetary and fiscal policies on the overall economy.
In conclusion, the LM curve plays a crucial role in the IS-LM model by representing the equilibrium between money supply and money demand, influencing interest rates, and helping to analyze the impact of policy changes on the economy.
Relationship between Money Supply and Money Demand:
The LM curve shows the combinations of interest rates and income levels where the money supply equals the money demand. It illustrates how changes in income levels affect the demand for money and consequently the interest rates in the economy.
Equilibrium in the Money Market:
The LM curve helps in determining the equilibrium in the money market by showing where the supply of money provided by the central bank matches the demand for money by individuals and businesses. This equilibrium point influences interest rates in the economy.
Impact on Aggregate Demand:
Changes in the money supply, represented by shifts in the LM curve, can have an impact on aggregate demand. For example, an increase in the money supply may lead to lower interest rates, which can stimulate investment and consumption, ultimately boosting aggregate demand.
Interaction with the IS curve:
The LM curve works in conjunction with the IS curve in the IS-LM model to determine the equilibrium levels of income and interest rates in the economy. Together, these two curves provide a framework for analyzing the effects of monetary and fiscal policies on the overall economy.
In conclusion, the LM curve plays a crucial role in the IS-LM model by representing the equilibrium between money supply and money demand, influencing interest rates, and helping to analyze the impact of policy changes on the economy.
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What is the role of the LM curve in the IS-LM model?a)It represents th...
The LM curve represents the equilibrium in the money market, where the supply of real money balances matches the demand for money, determined by the level of income and the interest rate. The intersection of the IS and LM curves determines the equilibrium level of income and interest rate in the economy.
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What is the role of the LM curve in the IS-LM model?a)It represents the equilibrium between investment and savings.b)It illustrates the relationship between income and output.c)It shows the equilibrium between money supply and money demand.d)It depicts the relationship between exports and imports.Correct answer is option 'C'. Can you explain this answer?
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What is the role of the LM curve in the IS-LM model?a)It represents the equilibrium between investment and savings.b)It illustrates the relationship between income and output.c)It shows the equilibrium between money supply and money demand.d)It depicts the relationship between exports and imports.Correct answer is option 'C'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What is the role of the LM curve in the IS-LM model?a)It represents the equilibrium between investment and savings.b)It illustrates the relationship between income and output.c)It shows the equilibrium between money supply and money demand.d)It depicts the relationship between exports and imports.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the role of the LM curve in the IS-LM model?a)It represents the equilibrium between investment and savings.b)It illustrates the relationship between income and output.c)It shows the equilibrium between money supply and money demand.d)It depicts the relationship between exports and imports.Correct answer is option 'C'. Can you explain this answer?.
What is the role of the LM curve in the IS-LM model?a)It represents the equilibrium between investment and savings.b)It illustrates the relationship between income and output.c)It shows the equilibrium between money supply and money demand.d)It depicts the relationship between exports and imports.Correct answer is option 'C'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What is the role of the LM curve in the IS-LM model?a)It represents the equilibrium between investment and savings.b)It illustrates the relationship between income and output.c)It shows the equilibrium between money supply and money demand.d)It depicts the relationship between exports and imports.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the role of the LM curve in the IS-LM model?a)It represents the equilibrium between investment and savings.b)It illustrates the relationship between income and output.c)It shows the equilibrium between money supply and money demand.d)It depicts the relationship between exports and imports.Correct answer is option 'C'. Can you explain this answer?.
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