Derivation of LM CURVE
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Derivation of LM CurveLM curve
Derivation of LM Curve
LM curve can be derived from the Keynesian theory from its analysis of money market equilibrium. According to Keynes, demand for money to hold depends upon transactions motive and speculative motive. It is the money held for transactions motive which is a function of income.
DERIVATION OF LM CURVEThe LM curve can be derived from the Keynesian theory from its analysis of money market
equilibrium. According to Keynes, demand for money to hold depends upon transactions
motive and speculative motive. It is the money held for transactions motive which is a
function of income. The greater the level of income, the greater the amount of money held for
transactions motive and therefore higher the level of money demand curve.
The demand for money depends on the level of income because they have to finance their
expenditure, that is, their transactions of buying goods and services. The demand for money
also depends on the rate of interest which is the cost of holding money. This is because by
holding money rather than lending it and buying other financial assets, one has to forgo
interest.
Thus demand for money (Md) can be expressed as: Md= L(Y, r)where Md stands for demand
for money, Y for real income and r for rate of interest.
Thus, we can draw a family of money demand curves at various levels of income. Now, the
intersection of these various money demand curves corresponding to different income levels
with the supply curve of money fixed by the monetary authority would gives us the LM
curve.
The LM curve relates the level of income with the rate of interest which is determined by
money-market equilibrium corresponding to different levels of demand for money. The LM
curve tells what the various rates of interest will be (given the quantity of money and the
family of demand curves for money) at different levels of income.
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consumer surplus economics
LM curve can be derived from the Keynesian theory from its analysis of money market equilibrium. According to Keynes, demand for money to hold depends upon transactions motive and speculative motive. It is the money held for transactions motive which is a function of income.
DERIVATION OF LM CURVEThe LM curve can be derived from the Keynesian theory from its analysis of money market
equilibrium. According to Keynes, demand for money to hold depends upon transactions
motive and speculative motive. It is the money held for transactions motive which is a
function of income. The greater the level of income, the greater the amount of money held for
transactions motive and therefore higher the level of money demand curve.
The demand for money depends on the level of income because they have to finance their
expenditure, that is, their transactions of buying goods and services. The demand for money
also depends on the rate of interest which is the cost of holding money. This is because by
holding money rather than lending it and buying other financial assets, one has to forgo
interest.
Thus demand for money (Md) can be expressed as: Md= L(Y, r)where Md stands for demand
for money, Y for real income and r for rate of interest.
Thus, we can draw a family of money demand curves at various levels of income. Now, the
intersection of these various money demand curves corresponding to different income levels
with the supply curve of money fixed by the monetary authority would gives us the LM
curve.
The LM curve relates the level of income with the rate of interest which is determined by
money-market equilibrium corresponding to different levels of demand for money. The LM
curve tells what the various rates of interest will be (given the quantity of money and the
family of demand curves for money) at different levels of income.
Introductory Macroeconomic Delhi university: Introductory Macroeconomic Delhi univ...
Direct link To access the playlist
Download my app Vishnu ECONOMICS SCHOOL from the playlist or the link is given below https://play.google.com/store/apps/de...
Website https://vishnueconomicsschool.in
@veseconomicsoptional5847
Link of Separate Channel Link For UPSC ECONOMICS
Download my app Vishnu ECONOMICS SCHOOL from the playlist or the link is given below https://play.google.com/store/apps/de...
TELEGRAM; - https://t.me/Vishnueconomicsschool
FACEBOOK PAGE
https://www.facebook.com/Vishnu-Econo...
Instagram: vishnuecoschool
Our channel for commerce students VE Academy of Commerce
@mahavidyaignoueconomics
DEMO
ENGLISH MEDIUM
MICROECONOMICS
HINDI MEDIUM
Playlist
consumer surplus economics
6 سال پیش
در تاریخ 1397/02/31 منتشر شده
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