What 3 things can shift the LM curve to the right or left?

What 3 things can shift the LM curve to the right or left?

Key Takeaways Fiscal stimulus, that is, increasing government spending and/or decreasing taxes, shifts the IS curve to the right, raising interest rates while increasing output.

What shifts the LM curve up?

Shifts of the LM Curve: An increase in money supply shifts the LM curve to toe right and reduces toe rate of interest. This raises investment in the commodity market. Income consequently rises.

What happens to LM curve when money supply increases?

The increased demand for cash shifts the LM curve up. This happens because at any given level of income and money supply, the interest rate necessary to equilibrate the money market is higher. The upward shift in the LM curve lowers income and raises the interest rate.

Which of the following will cause the LM curve to shift to the right?

Answer and Explanation: The correct answer is b) A fall in the price level – increases the real money supply (shifts out LM). The LM curve will shift rightward when there is…

Why an LM curve is upward sloping?

The LM curve slopes upward because higher levels of income (GDP) induce increased demand to hold money balances for transactions, which requires a higher interest rate to keep money supply and liquidity demand in equilibrium.

Why is LM curve upward sloping?

What happens to LM curve when government spending increases?

An increase in government spending shifts out the IS curve. Movements along the LM Curve: An increase in Y increases money demand, which causes an increase in interest rates to maintain money market equilibrium. LM Curve: At higher levels of output, equilibrium in the money market implies higher interest rates.

Why LM curve is downward sloping?

At lower interest rates, investment is higher, which translates into more total output (GDP), so the IS curve slopes downward and to the right. The LM curve depicts the set of all levels of income (GDP) and interest rates at which money supply equals money (liquidity) demand.

What affects the slope of LM curve?

The slope of the LM curve depends upon the income elasticity and the interest elasticity of the demand for money.

What happens to the IS LM curve when government spending decreases?

Any change (decrease in government consumption, increase in taxes, decrease in consumer confidence – proxied by c0) that, for a given interest rate, decreases the demand for goods creates a shift of the IS curve to the left. = YL(i) This equilibrium condition is called the LM relation.

What happens to LM curve when money supply decreases?

When the Fed decreases the money supply, the LM curve will shift up and to the left. Output will remain at the same level and the interest rate will be higher. There will be no change in consumption and no change in investment.

Why LM curve is positively sloped?

The LM curve has a positive slope because as income increases, money demand increases and bond demand decreases for a given interest rate.

What makes the LM curve flatter?

The LM curve is flatter if the interest elasticity of demand for money is high. On the contrary, the LM curve is steep if the interest elasticity demand for money is low. 4. The LM curve shifts to the right when the stock of money supply is increased and it shifts to the left if the stock of money supply is reduced.

What happens to is LM curve when government spending increases?

Increased government spending or a tax cut is assumed to be financed by borrowing. The money supply does not change, so the LM curve does not change.

Why is LM line upward sloping?