The lm relation e Equilibrium in financial market requires that money supply be equal to money demand, that Ms=/MdUsing equation (4.1) for money demand, the equilibrium condition is Money supply Money demand M=SYLO This equation tells us that the interest rate must be such that people are willing to hold an amount of money equal to the existing money supply. This equilibrium relation is called the LM relation 2003-6-29 62003-6-29 6 The LM Relation Equilibrium in financial market requires that money supply be equal to money demand, that Ms= Md .Using equation (4.1) for money demand, the equilibrium condition is Money supply = Money demand M = $YL(I) ⚫ This equation tells us that the interest rate must be such that people are willing to hold an amount of money equal to the existing money supply. This equilibrium relation is called the LM relation