The slope of the LM curve:
The slope of the LM curve on the other hand, depends on (i) the responsiveness of the demand for real money balance to a change in interest rate(h); and (ii) the responsiveness of the demand for real money balance to a change in income (k).
Conclusions:
The more responsiveness is the demand for real money balance to a change in interest rate (h), i.e. the bigger is h, the flatter is the LM curve and vice versa.
The less responsiveness is the demand for real money balance to a change in income (k), the smaller is k, the flatter is the LM curve
Wednesday, June 4, 2008
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