3. The money market of a hypothetical economy is described by: Md = 0.25Y - 125r 2500 where r is the interest rate (%).
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3. The money market of a hypothetical economy is described by: Md = 0.25Y - 125r 2500 where r is the interest rate (%). Find the LM curve. (1) (iii) (iv) What is the slope of the LM curve? Is it positively or negatively sloped? What happens to the LM curve if real money supply increases to 3000? Find what happens to the LM curve when (a) income-responsiveness of the demand for money falls to 0.20 and (b) interest-responsiveness rises to 150. Find if the following interest rate and income pairs are on the LM curve: (a) 5% and 10 000, (b) 10% and 15 000, and (c) 15% and 20 000. (v)