Moving upward along an LM curve,velocity ________ because ________ remains constant while ________ rises.
A)rises,real balances,real income
B)rises,the interest rate,the price level
C)rises,the interest rate,real balances
D)falls,real balances,real income
E)falls,real income,real balances

Question

Quizplus · Accepted Answer

The LM curve represents the relationship between liquidity preference and money supply in an economy, holding the interest rate constant. Moving up along the LM curve implies an increase in income, which increases the demand for money. Since the money supply remains constant, the velocity of money (how quickly money circulates in the economy) must rise to accommodate the higher demand for transactions. This happens because real income rises, increasing transactions demand for money, while real balances (the real value of the money supply) remain constant.

Moving Upward Along an LM Curve,velocity ________ Because ________ Remains

Moving Upward Along an LM Curve,velocity Because Remains