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The LM curve watch

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    Hello,

    here's my question : Why is the LM curve called the liquidity preference - money market and how come the equation does not match the graph.

    M/P = YL(i) does not compare Y with i as labelled on the graph as you might expect with i as the dependent and Y as the independent value
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    Because it tells you where the interest rate has to be for a given level of Y for there to be equilibrium in the money market.
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    (Original post by danny111)
    Because it tells you where the interest rate has to be for a given level of Y for there to be equilibrium in the money market.
    But that does not really answer my question
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    (Original post by Zenomorph)
    But that does not really answer my question
    Yes it does. You asked why the axes are Y and i when the curve "M/P = YL(i) does not compare Y with i".

    I just told you why it does in fact "compare" the two.
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    (Original post by danny111)
    Yes it does. You asked why the axes are Y and i when the curve "M/P = YL(i) does not compare Y with i".

    I just told you why it does in fact "compare" the two.
    Not really that is just repeating common knowledge.

    If that is the case then if the chart wants to show equilibrium MM interest rates and output, then if should express something like this:


    For M/P = YL(i), I = (M/P)/ L / Y
 
 
 
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