An increase in the money supply will cause
A) the IS curve to shift to the right.
B) the IS curve to shift to the left.
C) the LM curve to shift to the right.
D) the LM curve to shift to the left.

Question

Quizplus · Accepted Answer

An increase in the money supply will lower the interest rate, leading to an increase in investment and consumption expenditure. This will cause the LM curve to shift to the right, as it represents the combination of interest rates and output that equate money market demand and supply. The IS curve, on the other hand, shows the equilibrium in the goods market, and is not directly affected by changes in the money supply.

An Increase in the Money Supply Will Cause