11. Graphically derive the LM curve from the money market equilibrium when the money supply is exogenously determined by the central bank and remain constant. That is, drive the positive relation between the interest rate and income. 12. Derive LM relation and graphically show it under the alternative assumption that the central bank sets a target interest rate (and adjusts the money supply so as to achieve it). In this case, LM relation would represent the combination of interest rate and output arising from an interest rate rule.

Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
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Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
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11. Graphically derive the LM curve from the money market equilibrium when the money
supply is exogenously determined by the central bank and remain constant. That is, drive the
positive relation between the interest rate and income.
12. Derive LM relation and graphically show it under the alternative assumption that the central
bank sets a target interest rate (and adjusts the money supply so as to achieve it). In this case,
LM relation would represent the combination of interest rate and output arising from an
interest rate rule.
Transcribed Image Text:11. Graphically derive the LM curve from the money market equilibrium when the money supply is exogenously determined by the central bank and remain constant. That is, drive the positive relation between the interest rate and income. 12. Derive LM relation and graphically show it under the alternative assumption that the central bank sets a target interest rate (and adjusts the money supply so as to achieve it). In this case, LM relation would represent the combination of interest rate and output arising from an interest rate rule.
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