What are the three regions of the LM curve and what are their economic implications

LM curves. The three regions of the upward slope refer to the three phases of the LM curve from left to right: the horizontal line, the upper right slope line, and the vertical line. The three regions of the LM curve are called the Keynesian region, the intermediate region, and the classical region.

1. Keynesian area: When the interest rate falls to a very low level (R1 level), the speculative demand for money tends to be infinite, and the currency speculative demand curve will become a horizontal line, and there is also a horizontal area on the corresponding LM curve, which is usually what we call the Keynesian area.

2. In the Keynesian region, because of the low level of interest rates, it is assumed that ** implements expansionary monetary policy.

Increasing the money supply does not lower interest rates or increase incomes, so monetary policy is ineffective at this time. On the contrary, expansionary fiscal policy.

It can raise the level of income without changing interest rates, so fiscal policy has a great effect.

1. The LM curve represents the relationship between income and interest rate changes when the money supply is equal to the demand for money in the money market. The formula is m=ky-hr.

2. The LM curve is expressed as the relationship between income Y and interest rate R under the equilibrium condition of satisfying the money market. Any point on this line represents a certain combination of interest rate and income, and in such a combination, the demand and supply of money are in equilibrium, that is, the money market is equilibrium.

3. The three regions formed by the LM curve are the Keynesian region, the middle region, and the classical region.

Cairns Region:

When interest rates fall to a very low level (R1 level), the speculative demand for money tends to be infinite, and the speculative demand curve for money becomes a horizontal line, and there is also a horizontal area on the corresponding LM curve, which is a horizontal line. Represents economic depression or economic stagflation, such as the Great Depression in the United States from 1929 to 1933.

Classical Zone: When interest rates rise to a very high level (R2 level), the speculative demand for money will be equal to zero, and people will not hold money for speculation except for a part of the currency that must be held in order to complete the transaction. Because interest rates are high, it is not cost-effective to speculate and hold currencies. The area is a vertical line.

Intermediate areas: The Keynesian area and the classical area are the two extremes of the LM curve, and the market and ** are all strongly avoided. The middle zone is the normal and healthy economic performance.

The slope of the LM curve is infinity in the classical region, zero in the Keynesian region, and positive in the middle region.

The LM curve indicates that the demand and supply of money are equal under various combinations of interest rates and income, i.e., the money market is equilibrium. The LM curve is divided into three regions, namely the Keynesian region, the classical region, and the intermediate region. If the interest rate is lowered to such a low level, the implementation of expansionary monetary policy to increase the money supply cannot lower the interest rate or increase the income, so the monetary policy is ineffective, on the contrary, the expansionary fiscal policy will raise the income level without raising the interest rate, so the fiscal policy has an effect.

The area where the LM curve is vertical is called the "classical zone", and if an expansionary fiscal policy is implemented only to raise interest rates and not to increase incomes, if an expansionary monetary policy is implemented, it will not only lower interest rates, but also raise income levels. Therefore, fiscal policy is ineffective and monetary policy is effective. The region of the LM curve that connects the Keynesian zone and the classical zone is called the "intermediate zone", and both monetary and fiscal policy are valid in the intermediate zone.

The LM curve is a curve used to describe the relationship between national income and interest rates in a state of equilibrium in the money market.

The LM curve represents the trajectory of the point at which the money supply equals the various combinations of income and interest rates when the money supply is equal to the demand for money. The mathematical expression of the lm curve is m p=ky-hr and its slope is positive.

The LM curve is a curve that describes the different combinations of income and interest rates that keep the money market in equilibrium. In other words, on the LM curve, each point represents the combination of income and interest rates, which happens to put the money market in equilibrium.

Any point on the lm curve means that l= m, i.e., the money market has achieved macro equilibrium. Conversely, the money market is not in equilibrium.

lm to the right, for lm, interest rates are too low, resulting in the demand for money**. To the left of lm, it means lm, the interest rate is too high, resulting in the demand for money "Money**.

Keynesian area, intermediate area, classical area.

The so-called effectiveness of the policy depends on how much the policy can ultimately change income. If the policy does not change the income, it is invalid; If the income can change, the policy is effective; The greater the change in income, the better the policy effect.

You say, "I don't understand a word of this passage," and I really don't know where to start with it. You can ask and explain to you one by one.

This is explained in great detail in Western economics books.

null)What are the three regions of the LM curve? How do the effects of macroeconomic policies differ across regions?

See the answer explained[Answer].The LM curve is divided into Keynesian region, classical region, and intermediate region.

The Keynesian region is an extreme case on the LM curve, in which changing the position of the LM curve by changing the money supply has no effect on the equilibrium national income because people's flow bending preference tends to be infinite, while the moving IS curve can maximize the change of the national income. Thus, in the Keynesian region, fiscal policy works and monetary policy does not.

The classical zone is the other extreme case on the LM curve, where changing the LM curve can reduce the interest rate while increasing the level of income because the speculative demand for money is close to zero. And the movement of the IS curve only affects interest rates. So, in the classical region, monetary policy works, while fiscal policy doesn't.

In the intermediate region, the changes of the IS curve and the LM curve both have an impact on the national economy, therefore, in the intermediate region, both fiscal and monetary policies are effective, and the degree of their impact on the equilibrium income depends on the position of the LM curve at the intersection of the IS curve and the LM curve: where the belt is close to the Keynesian region, fiscal policy is more important; Monetary policy is more effective in places close to the classical region. In general, fiscal and monetary policy are often used together.

The three regions on the LM curve refer to the three phases of the horizontal line, the upper right slope line, and the vertical line experienced by the LM curve from left to right The three regions of the LM curve are called Keynesian regions, intermediate regions, and classical regions respectively.

Its economic implication refers to the fact that on the LM curve of the horizontal stage, the demand curve of money has been in a horizontal state, and the speculative demand for money has reached the lowest point of the decline in interest rates "liquidity trap" stage, and the demand for money is extremely sensitive to interest rates Keynes believes that when the interest rate is very low, that is, when the bond is very high, people feel that it is extremely risky to buy bonds with currency, because the bond is so high, so it will only fall, not rise, so it is likely to lose money when buying bonds, and people are reluctant to buy bonds if they have currency in hand. At this time, the demand for monetary speculation becomes infinitely open, so that the LM curve is horizontal, and since this analysis was proposed by Keynes, the horizontal LM area is called the Keynesian zone.

In the vertical stage, the slope of the blind LM curve is infinite, or the speculative demand of money is no longer sensitive to interest rates, so that the slope of the money demand curve (1 h) tends to infinity, and the vertical state means that no matter how the interest rate changes, the speculative demand for money is zero, so that the LM curve is also in a vertical state (K h tends to infinity). Since the "classical school" believes that the demand for money is only for trading and not for speculation, the vertical LM zone is called the classical zone.

The area between the vertical and horizontal lines is called the "middle area".

Summary. Economic implications: In the Keynesian zone, when the interest rate level falls to a low level, the implementation of expansionary monetary policy is ineffective, while the implementation of expansionary fiscal policy will have significant effects; The classical zone is that when interest rates rise to a fairly high level, the speculative demand for money will tend to zero, and fiscal policy will be ineffective and monetary policy will be effective; In the middle region, the slope of the LM curve is positive, indicating that income is positively correlated with interest rates.

The three regions of the LM curve and their economic implications.

The three regions of the slope on the LM curve refer to the three stages of the horizontal line, the upper right slope line, and the vertical line of the LM curve from left to right. The three regions of the LM curve are called the Keynesian zone, the middle zone, and the classical sliding zone. <

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Economic implications: In the Keynesian zone, when the interest rate is pure or flattened to a low level, the implementation of expansionary monetary policy is ineffective, while the implementation of expansionary fiscal policy will have significant effects; In the classical region, when interest rates rise to a fairly high level, the speculative demand for money will tend to zero, and the fiscal policy will be ineffective and the monetary incentive policy will be effective. In the middle region, the slope of the LM curve is positive, indicating that income is positively correlated with interest rates. <>