Which of the following will cause the LM curve to shift to the left?
A)A reduction in the interest rates
B)A decrease in the average price level
C)An exogenous decrease in money demand
D)A contractionary monetary policy

Question

Quizplus · Accepted Answer

A contractionary monetary policy will cause a decrease in money supply, which will increase the interest rates and shift the LM curve to the left. A reduction in interest rates (choice A) will shift the LM curve to the right, as it will result in an increase in investment and aggregate demand. A decrease in the average price level (choice B) will not directly affect the LM curve as it is determined by the money market. An exogenous decrease in money demand (choice C) will also not directly affect the LM curve, as it represents a shift in the money demand curve rather than the LM curve itself.

Which of the Following Will Cause the LM Curve to Shift