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Why does the decline in the price level cause the LM curve to move to the right when the nominal money supply remains unchanged?
Deducting the price factor from the actual money supply is equal to the nominal money supply divided by the price level, that is, m = m = m=M/P p. Therefore, when the nominal money supply is constant, the actual money quantity and the price level change in the opposite direction, LM curve: y = hr/k+m/k. When the commodity level drops, the price index p drops, that is, m=M/P increases, that is, at the same interest rate.

Nominal money supply

Nominal money supply is the money supply expressed in monetary units, which is the sum of net money and net deposits. Although the currency in circulation is paid by bank loans or government bonds, it is the central bank that determines a country's money supply. Therefore, in western economics, the money supply is regarded as exogenous by the central bank.

The procedure for the central bank to control the money supply is as follows: the central bank injects reserves into commercial banks, mainly by opening market business, adjusting the statutory reserve ratio and adjusting the rediscount rate, and then releasing the nominal money supply of the whole society at multiple levels through the deposit and loan activities of commercial banks. Monetarists believe that the root of inflation lies in the excessive issuance of money by the government, so they advocate the single currency rule, that is, the growth rate of money supply should be consistent with the growth rate of labor productivity.

Real money supply

The actual money supply is the money supply represented by real goods and services, that is, the money supply measured by the purchasing power of real money. After subtracting the nominal money supply (MS) from the total price index (P), the actual money supply can be obtained. The formula is: actual money supply = ms/p.

price level

Price level refers to the price of the whole economy, not the price of a certain item or a certain kind of goods. Measuring the potential consumption power of the target market and analyzing its economic situation is another very important indicator. Price stability is the concentrated expression of economic stability, financial stability and monetary stability. Price stability also indicates that the total social demand is basically balanced, the fiscal revenue and expenditure are basically balanced, and the money supply in circulation is basically adapted to the amount of money in the market.