Answer to Question #221076 in Macroeconomics for DARRYL

Question

With the aid of a diagrams, briefly explain how interest elasticities and demand for money affect the slope of the IS and the LM curve

Answer 1

With a rise in the rates of interestin relation to the earned rates on money deposits, less money is held by the people. When there is a decrease in the interest rates, more money is held by the people.

The amount of money held by households varies in relation to their interest rates and income.

The money demand curve depicts the demand for money at each interest rate. It has a negative slope hence the relationship between the interest rate and demanded money is negative.