The horizontal and vertical axes of the LM curve diagram represent,respectively,
A) the quantity of money and the price level
B) the quantity of money and the interest rate
C) real GDP and the interest rate
D) real GDP and the price level
E) the unemployment rate and the inflation rate

Question

Quizplus · Accepted Answer

The LM curve represents the relationship between the liquidity preference (demand for money) and the money supply, plotted against the interest rate and real GDP. It shows combinations of interest rates and levels of real GDP at which the money market is in equilibrium.

The Horizontal and Vertical Axes of the LM Curve Diagram