تحول منحنى LM I

The LM curve represents equilibrium in the money market at different income levels. When the real money supply changes, the LM curve shifts.

Suppose the central bank increases the nominal money supply while prices stay fixed. This extra money shifts the vertical money supply line to the right.

At the current interest rate, people are now holding more cash than they need for daily expenses. To earn a return on this idle cash, they rush to buy bonds. As demand for bonds rises, lenders no longer need to offer high returns to attract buyers, so interest rates fall.

This lower interest rate applies at every income level. Since the LM curve shows equilibrium combinations, the entire LM curve shifts to the right.

On the other hand, if the central bank reduces the money supply, cash becomes scarce. People rush to get cash by selling their bonds.

Because many people are selling bonds and few people are buying them, bonds must offer higher interest rates to convince anyone to part with their scarce cash. This shifts the LM curve to the left.

So, changes in money supply shift the LM curve by changing interest rates at every income level.