Which of the following is true of the LM curve when the nominal interest rate is on the vertical axis?
A) The LM curve becomes downward sloping.
B) The LM curve becomes steeper.
C) A change in expected inflation will have no effect on the position of the LM curve.
D) A decrease in the expected inflation rate will make the LM curve shift down.
E) A decrease in the expected inflation rate will make the LM curve shift up.

Question

Quizplus · Accepted Answer

When the nominal interest rate is on the vertical axis, the LM curve represents the relationship between the nominal interest rate and income, assuming a fixed money supply and price level. A change in expected inflation does not directly affect the position of the LM curve in this context because the LM curve is derived from the demand and supply of money, which are not directly influenced by expected inflation in the short run.

Which of the Following Is True of the LM Curve