It's because each LM curve is drawn with a fixed nominal money supply and a fixed price level i.e. A constant 'real' money supply with a constant level of purchasing power. If the economy is producing at full capacity, then any attempt to boost it further will ultimately induce a higher price level that offsets the fiscal expansion. This paper 'The Relationship Between Inflation and Nominal Interest Rates' is a reasonable example of a Finances and Accounting assignment. It explains how it can be ascertained that the cash target rate possesses an indirect level of relationship with the consumer price.
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Founded in 1969, the Journal of Money, Credit and Banking (JMCB) is a leadingprofessional journal read and referred to by scholars, researchers, andpolicymakers in the areas of money and banking, credit markets,regulation of financial institutions, international payments, portfoliomanagement, and monetary and fiscal policy. The JMCB represents a widespectrum of viewpoints and specializations in its fields through itsadvisory board, associate editors, and referees from academic,financial, and governmental institutions around the world.
Real Money Supply Nominal Interest Rates
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Journal of Money, Credit and Banking © 1972 Ohio State University Press
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