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The LM curve with inflation
We know that LM curve will shift upwards when P increases (presuming MS is constant). This is still true though we can also add that LM curve glides upwards if π > πM (as R increases) and LM curve glides downwards if πM> π.
The previous result is a special case of this result. If P increases then π > 0 and if MS is constant then πM = 0 and LM curve glides upwards. Formerly, we only considered cases when P jumped (from say 100 to 120). This translates into having inflation for a short duration, an LM curve that glides upwards and when P reaches 120, inflation cease and LM curve will stop moving.
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