When the LM curve is drawn, the quantity that is held fixed is:

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When constructing the LM curve, we analyze the money market with prices held constant in the short run, which implies that the variable held fixed is the real money balances, M/P. 
Option a: 'the nominal money supply' is not fixed in the LM framework because, with a given price level, changes in P would alter real balances even if M were constant; in many analyses, M/P is treated as the key fixed quantity, not M alone. 
Option b: 'the real money supply' is the correct characterization because the LM curve is derived from equating money demand with money supply in real terms, so M/P is held constant while P can influence real balances. 
Option c: 'government spending' belongs to the fiscal side and affects the IS curve, not the LM curve, so it is not the quantity held fixed when drawing LM. 
Option d: 'the tax rate' similarly belongs to fiscal policy and influences aggregate demand through the IS curve, not the money market condition captured by the LM, so it is not the fixed variable in this context.

BU.220.610.51.FA25 M8 Final Comprehensive Exam - Multiple Choice Questions- Requires Respondus LockDown Browser

When the LM curve is drawn, the quantity that is held fixed is:

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BU.220.610.51.FA25 M8 Final Comprehensive Exam - Multiple Choice Questions- Requires Respondus LockDown Browser

When the LM curve is drawn, the quantity that is held fixed is:

View Explanation

Log in for full answers

Similar Questions

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output [ Select ] .

The IS curve shifts when any of the following economic variables change except:

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will __, shifting the ____ curve to the right and returning output to the natural level.

In the IS-LM model, a decrease in government purchases leads to a(n) ______ in planned expenditures, a(n) ______ in total income, a(n) ______ in money demand, and a(n) ______ in the equilibrium interest rate.

According to the IS-LM model, if Congress raises taxes but the Fed wants to hold income constant, then the Fed must ______ the money supply.

An increase in the money supply shifts the __ curve to the right, and the aggregate demand curve ____.

Other things equal, a given change in money supply has a larger effect on demand the:

The tax decrease makes the interest rate ______ and investment ______ in this model.

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will , shifting the __ curve to the right and returning output to the natural level.

In the IS-LM model, a decrease in government purchases leads to a(n) in planned expenditures, a(n) in total income, a(n) in money demand, and a(n) in the equilibrium interest rate.

An increase in the money supply shifts the curve to the right, and the aggregate demand curve __.

The tax decrease makes the interest rate and investment in this model.