Looking at the macroeconomic statistics for Friedmanland,you discover that at the beginning of the year,the national money supply was equal to $400 million and by the end of the year it was equal to $420 million.You also found out that the inflation rate in Friedmanland was 7%.In this case,you would expect the LM curve to
A)shift up as the real money supply falls.
B)shift up as the real money supply rises.
C)shift down as the real money supply falls.
D)shift down as the real money supply rises.

Question

Quizplus · Accepted Answer

The nominal money supply increased by 5% (from $400 million to $420 million), but the inflation rate was 7%, leading to a decrease in the real money supply. This causes the LM curve to shift up.

Looking at the Macroeconomic Statistics for Friedmanland,you Discover That at the Beginning