Multiple choice

Shift in LM curve takes place due to

  1. Increase in autonomous Investment

  2. Increase in money supply

  3. Increase in consumption

  4. Increase in saving rate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The LM curve represents money market equilibrium, showing combinations of interest rate and income where money demand equals money supply. An increase in money supply shifts the LM curve to the right because at any given income level, a lower interest rate is now needed to maintain money market equilibrium. Investment, consumption, and saving affect the goods market and thus the IS curve, not the LM curve.

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