If the demand function for money is M / P = 0.2Y - 200r, and if M / P increases by 100, then the LM curve for any given interest rate shifts to the:
A)left by 100.
B)left by 500.
C)right by 100.
D)right by 500.

Question

Quizplus · Accepted Answer

The LM curve shifts to the right by 500 because an increase in real money balances (M/P) by 100 increases the equilibrium income level by 500, given the coefficient of income (0.2) in the money demand function.

If the Demand Function for Money Is M / P