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I'm confused because my textbook says the higher interest elasticity of money demand is , the flatter slope of the LM curve is.
If the interest changes, then isn't it the movement along the curve in the money demand curve?
I can't understand how interest elasticity of money demand is related with the slope of the LM curve. Can someone explain this GRAPHICALLY?
It is normal that the slope of the LM is related to the elasticity of money demand. If in an economy, the elasticity of money demand is so high, for little changes in the interest rate will make fluctuate the demand so much.
If you think about the extreme case, you will understand much easily. Suppose that the elasticity of money is near to infinity, (which makes the slope of your LM near to something horizontal on (interest rate, money demand) coordinate plane. (so in this case, your response to change of an interest rate is so huge.)
The symmetrical extreme case is that this curve becomes vertical, which makes that your money demand never changes whatever the change of interest rate.
