DSE 2011 Q-17

[shiva20]

in the answers it is written that the correct option is c which is LM being unchanged but if there is an increase in expected rate of inflation and i = r + expected rate of inflation
so i should increase causing real money supply to decrease and hence LM shifting leftwards or up

please someone explain why LM remains unchanged

[sonudelhi]

hey,,, in (Y,i) it will only shift IS curve,because when expected inflation changes it only effects real interest rates R,so do investment