Lesson Plan

• Describe liquidity preference and the three motives for holding money.
• Explain the money‑demand function and how income, price level, interest rate and financial innovation affect it.
• Analyse the shape of the money‑demand curve and its link to the speculative motive.
• Derive the LM curve from money‑market equilibrium and predict the impact of monetary‑policy shifts.

• Projector and screen
• PowerPoint slides with diagrams
• Printed handout containing the money‑demand and LM curves
• Worksheet with practice questions
• Calculator for each student
• Whiteboard and markers

Begin with a quick poll: “How much cash do you keep at home and why?” Use the responses to highlight everyday liquidity needs. Recall that students already know basic demand‑supply graphs, so link that knowledge to money as a special good. State that by the end of the lesson they will be able to explain why the demand for money slopes downward and how it feeds into the LM curve.

1. Do‑now (5'): Students answer the cash‑holding poll on a sticky note and share one reason.
2. Mini‑lecture (10'): Define liquidity preference, outline the transactions, precautionary and speculative motives using slides.
3. Interactive derivation (12'): Work through the money‑demand function \(M^{d}=L(Y,i)\); fill a class table of determinants.
4. Graphing activity (10'): In pairs, sketch the money‑demand curve, label shifts caused by changes in Y, P, i and financial innovation.
5. Link to LM (10'): Derive the LM curve from \(M/P = L(Y,i)\); discuss how shifts in money supply or income move the LM.
6. Exam‑style practice (8'): Pairs answer the sample question on interest‑rate effects; teacher debriefs key points.
7. Exit ticket (5'): Each student writes one takeaway about the relationship between liquidity preference and the LM curve.

Summarise how the three motives drive the shape of the money‑demand curve and how that curve feeds into the LM relationship. Collect exit tickets to gauge understanding, and assign the worksheet for homework, asking students to complete the LM‑curve shift questions and read the textbook section on monetary policy.