Figure 4 Refer to figure 4 above. Assuming that Y₂ represents a level of national income lower than the full employment level, and that inflation has remained unchanged after the event that caused the IS curve to shift, what should the monetary authorities do if they wish to reduce unemployment?

Question

Quizplus · Accepted Answer

In order to reduce unemployment, the monetary authorities should increase money supply. This will shift the LM curve downward and lead to lower interest rates, which will stimulate investment and consumption, thereby increasing aggregate demand and reducing unemployment.

Figure 4 ​ Refer to Figure 4 Above

Figure 4 Refer to Figure 4 Above