Question

The demand for money L=0.25 Y and the supply of money $\frac{\overline{M}}{P}$=500. In this case

• A. the LM curve is vertical and defined by Y = 2000 and this defines the classical case
• B. the LM curve is vertical and defined by Y=125 and this defines the case of liquidity trap
• C. the LM curve is upward sloping and defined by Y = 2000
• D. the LM curve is horizontal and defined by Y = 2000 and this is a case of liquidity trap

Answer 1

The Correct Option is A

The correct answer is (A) : the LM curve is vertical and defined by Y = 2000 and this defines the classical case.