equilibrium conditions- where money supply equals money demand  

• money supply generally given as a constant (vertical line)
  • doesn't change w/ interest rate
• M^s = M^d
• M^d / $Y = L(i)
  • M^d / $Y - ratio of money demand to nominal income (fraction of total income that ppl hold as money)
• LM relation - equilibrium at intersection of money supply and money demand (downward sloping curve dependent on interest rate i from L(i))
  • interest at level that that cause ppl to hold M^d equal to M^s
  • if M^d=M^s then B^d=B^s since (wealth = B+D and wealth stays constant)
• changes in $Y >> shift of M^d curve
• changes in interest rate >> mov't along curve

• money supply (not dependent on interest rate at all)
• money demand
• equilibrium

• higher $Y >> higher interest rate
• lower $Y >> lower interest rate
• money demand always equals money supply at equilibrium, so interest rate adjusts
• need higher interest rate w/ higher income to compel consumers to invest and have the same money demand as before, etc