Why does an increase in money demand shift the LM curve upwards to the left?
I am two classes away from having a B.A. in economics and in my opinion, the IS-LM model is the hardest thing I’ve ever studied in economics, including game theory, Stackelberg competition, and econometrics. I’ll do my best for you from memory. IS stands for investment savings and slopes downward. LM stands for liquidity preference money supply and slopes upward. Interest rates are the y-axis and Y (output/GDP) is on the x-axis. It is important to note that the independent variable for IS is interest rates but the independent variable for LM is income (Y). LM represents the purpose of money in an economy in short term equilibrium. It’s the liquidity preference and money supply equilibrium. It’s the equilibrium points between the demand for cash money (instead of savings) which is the liquidity preference part and the supply of cash money (from banks, the central bank, etc). The demand for money (liquidity preference) is downward sloping (LM is upward sloping but that’s because it repre
