False.

Here's why:

1. The LM (Liquidity preference-Money supply) curve represents the relationship between the interest rate and the level of income (output) that equates the demand for money with the supply of money. It is upward sloping, but not because a higher level of the money supply is needed to increase output.

2. The LM curve is upward sloping because an increase in income (output) increases the demand for money, which in turn raises the interest rate. Conversely, a decrease in income reduces the demand for money, which lowers the interest rate.

3. The position of the LM curve is determined by the money supply, which is set by the central bank. An increase in the money supply shifts the LM curve to the right, indicating a lower interest rate at every level of income. Conversely, a decrease in the money supply shifts the LM curve to the left, indicating a higher interest rate at every level of income.

4. Therefore, the statement is false. The LM curve is upward sloping because of the positive relationship between the interest rate and the level of income, not because a higher level of the money supply is needed to increase output.

Question

False.

Here's why:

1. The LM (Liquidity preference-Money supply) curve represents the relationship between the interest rate and the level of income (output) that equates the demand for money with the supply of money. It is upward sloping, but not because a higher level of the money supply is needed to increase output.

2. The LM curve is upward sloping because an increase in income (output) increases the demand for money, which in turn raises the interest rate. Conversely, a decrease in income reduces the demand for money, which lowers the interest rate.

3. The position of the LM curve is determined by the money supply, which is set by the central bank. An increase in the money supply shifts the LM curve to the right, indicating a lower interest rate at every level of income. Conversely, a decrease in the money supply shifts the LM curve to the left, indicating a higher interest rate at every level of income.

4. Therefore, the statement is false. The LM curve is upward sloping because of the positive relationship between the interest rate and the level of income, not because a higher level of the money supply is needed to increase output.

Knowee AI · Accepted Answer

False.

Here's why:

1. The LM (Liquidity preference-Money supply) curve represents the relationship between the interest rate and the level of income (output) that equates the demand for money with the supply of money. It is upward sloping, but not because a higher level of the money supply is needed to increase output.

2. The LM curve is upward sloping because an increase in income (output) increases the demand for money, which in turn raises the interest rate. Conversely, a decrease in income reduces the demand for money, which lowers the interest rate.

3. The position of the LM curve is determined by the money supply, which is set by the central bank. An increase in the money supply shifts the LM curve to the right, indicating a lower interest rate at every level of income. Conversely, a decrease in the money supply shifts the LM curve to the left, indicating a higher interest rate at every level of income.

4. Therefore, the statement is false. The LM curve is upward sloping because of the positive relationship between the interest rate and the level of income, not because a higher level of the money supply is needed to increase output.

The LM curve is upward sloping because a higher level of the money supply is needed to increase output

Question

The LM Curve

Solution

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