Evaluating alternative fiscal policies at an unchanged level of output - and specifically at potential output - also allows us to abstract from cyclical changes in the deficit and thereby to focus exclusively on changes in the structural budget balance. The position of the LM curve is determined in part by the stance of monetary policy.
I have drawn the conventional upward sloping LM curve predicated on a constant money stock. In this case, we could view the level of the money stock as being adjusted by open market operations to be consistent with the Federal Reserve’s target for the interest rate.