Answer to Question #225948 in Macroeconomics for Vivian

Question

A) Use appropriate diagrams and explain how the LM curve is derived.

B) Use appropriate diagram explain underway circumstances monetary policy is

(i) Completely ineffective

(ii) Most effective

Answer 1

LM curve is derived from money market equilibrium analysis based on the Keynesian theory. The more the transactions money, the greater the income level. This contributes to higher money demand curve level.