Consider the following money demand function (in real terms) where k is the income elasticity and h
Question:
Consider the following money demand function (in real terms)
where k is the income elasticity and h is the (nominal) interest rate elasticity of real money balances. Assume that k > 0 and that h > 0. Further assume that the quantity of nominal money balances is fixed by the Bank of Canada atM and that the price level, P, is also fixed at P.
a. Derive the equation for the LM curve.
b. What is the slope of the LM curve?
c. Discuss how the slope of the LM curve is affected by k and h.
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Related Book For 
The Economics Of Money Banking And Financial Markets
ISBN: 9780321584717
4th Canadian Edition
Authors: Frederic S. Mishkin, Apostolos Serletis
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