Under a certain money supply, the increase of income level increases the demand for money. Therefore, only when interest rates rise and speculative money demand falls can the balance of the money market be restored. Therefore, the slope of the LM curve is positive.
65438 +0. LM curve is the locus of the combination point of all income levels and interest rates needed to meet the equilibrium of money market. The slope of LM curve mainly depends on the ratio of elasticity of money demand to income and interest rate. The less elasticity of money demand relative to income, the greater elasticity of money demand relative to interest rate, and the smoother LM curve. The movement of LM curve is caused by exogenous changes in money supply and spontaneous changes in money demand. All points on the right side of the LM curve indicate that there is excess demand in the money market, and all points on the left side of the LM curve indicate that there is excess supply in the money market.
2. Only the points on the LM curve meet the requirement that money supply equals money demand. The development of the LM curve Every point on the LM curve shows that the money market has reached equilibrium, and the amount of money people are willing to hold in the money market is exactly equal to the amount of money they can actually get. LM curve is mainly influenced by monetary policy. Expansionary monetary policy (the central bank expands the money supply) will lower the interest rate level under the condition of constant income, that is, the LM curve will move parallel to the right.
3. Keynesian area, middle area and classical area. When the interest rate drops to a very low level, the speculative demand of money tends to infinity, and the speculative demand curve of money becomes a horizontal line. There is also a horizontal area on the corresponding LM curve. This region is often called Keynesian region. In Keynesian areas, because the interest rate is low, assuming that the government implements expansionary monetary policy to increase the money supply, it can neither reduce interest rates nor increase income, and the monetary policy is invalid at this time.
If the interest rate rises to a very high level, the speculative demand for money will be equal to zero. At this time, people will not hold money for speculation unless they have to hold some money to complete the transaction. The demand curve of currency speculation shows that the top of R2 is a vertical line coincident with the vertical axis, and the LM curve is also a vertical line with the interest rate R2. The region perpendicular to the LM curve is called the classical region. The LM curve between classical area and Keynesian area is the middle area. The slope of LM curve is infinite in classical region, zero in Keynesian region and positive in middle region.