For the liquidity preference and money supply curve, the independent variable is " income " and the dependent variable is " the interest rate . " The LM curve shows the combinations of interest rates and levels of real income for which the money market is in equilibrium.
32.
Recalling that for the LM curve, the interest rate is plotted against real GDP ( whereas the liquidity preference and money supply functions plot interest rates against the quantity of cash balances ), an increase in GDP shifts the liquidity preference function rightward and hence increases the interest rate.
33.
Recalling that for the LM curve, the interest rate is plotted against real GDP ( whereas the liquidity preference and money supply functions plot interest rates against the quantity of cash balances ), an increase in GDP shifts the liquidity preference function rightward and hence increases the interest rate.
34.
His " q " theory of investment ( Tobin 1969 ), the Baumol-Tobin model of the transactions demand for money ( Tobin 1956 ), and his model of liquidity preference as behavior toward risk ( the asset demand for money ) ( Tobin 1958b ) are all staples of economics textbooks.
35.
His most outstanding contribution to economic theory was the joint development, with John Hicks, of the so-called IS LM model, also known as the " Hicks Hansen synthesis . " The IS-LM diagram claims to show the relationship between the investment-saving ( IS ) curve and the liquidity preference-money supply ( LM ) curve.
36.
In addition, an equilibrium model ignores uncertainty and that liquidity preference only makes sense in the presence of uncertainty " For there is no sense in liquidity, unless expectations are uncertain . " A shift in one of the IS or LM curves will cause a change in expectations, which shifts the other curve.
37.
Essentially rejecting Say's law, he argued that some people may have a liquidity preference that would see them rather hold money than buy new goods or services, which therefore raised the prospect that the Great Depression would not end without what he termed in the " General Theory " " a somewhat comprehensive socialization of investment ."
38.
The theory was mainly developed by John Hicks, and popularized by the mathematical economist Paul Samuelson, who seems to have coined the term, and helped disseminate the " synthesis, " partly through his technical writing and in his influential textbook, " General Theory " with the IS / LM model ( investment saving liquidity preference money supply ) first presented by John Hicks in a 1937 article.
