L-M schedule

L-M (liquidity-money) scheduleclick for a larger image
Fig. 112 L-M (liquidity-money) schedule. The L-M schedule is upward-sloping: with a given money stock, a higher rate of interest leads to a smaller demand for speculative balances, leaving more money available for transaction balances (see MONEY DEMAND SCHEDULE). If these transaction balances are to be demanded, national income will have to be higher (the transaction demand for money is a function of the level of national income). Hence, to ensure that people will willingly take up these balances at a higher rate of interest, a higher level of national income is required.

L-M (liquidity-money) schedule

a schedule that shows the combinations of levels of NATIONAL INCOME and INTEREST RATES where the equilibrium condition for the monetary economy, 1 = M, holds. See Fig. 112 .

The L-M schedule interacts with the I-S SCHEDULE in determining a general equilibrium position for the economy as a whole. See also I-S/L-M MODEL, SPECULATIVE DEMAND, TRANSACTIONS DEMAND.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005