A change that increases the real money supply relative to real money demand causes
A)the LM curve to shift down and to the right.
B)the LM curve to shift up and to the left.
C)the IS curve to shift down and to the left.
D)the IS curve to shift up and to the right.

Question

Quizplus · Accepted Answer

An increase in the real money supply relative to real money demand would lead to a situation where individuals have more money than they need to transact with, leading to an increase in investment and consumption, causing the IS curve to shift downwards and to the right. Meanwhile, the central bank would need to lower interest rates to maintain the new real money supply, causing the LM curve to shift downwards and to the right as well.

A Change That Increases the Real Money Supply Relative to Real