Figure 16-1

-Refer to the figure Figure 16-1.If the economy starts at c and 1,then in the short run,where does an increase in the money supply move the economy?

Question

Figure 16-1
 
-Refer to the figure Figure 16-1.If the economy starts at c and 1,then in the short run,where does an increase in the money supply move the economy?

Quizplus · Accepted Answer

An increase in the money supply shifts the LM curve down, leading to a decrease in the interest rate and an increase in output. This shift causes the economy to move from point C to point B, which is a combination of higher output (2) and a lower interest rate. Point 1 remains unaffected, as it represents the initial level of the interest rate and output before the increase in the money supply.

Figure 16-1 -Refer to the Figure Figure 16-1.If the Economy Starts at the Economy