You have just read that the Federal Reserve has increased the money supply to avoid a recession.For a given price level,you would expect the LM curve to
A)shift up and to the left as the real money supply falls.
B)shift up and to the left as the real money supply rises.
C)shift down and to the right as the real money supply falls.
D)shift down and to the right as the real money supply rises.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply, it leads to a decrease in interest rates. This, in turn, stimulates investment and consumption spending by making it cheaper to borrow money. As a result, the aggregate demand (AD) curve shifts to the right, causing an increase in output and employment. The LM curve shows the combinations of interest rates and output that give equilibrium in the money market. Since the increase in money supply leads to a fall in interest rates, the LM curve shifts down and to the right. So, the correct answer is D.

You Have Just Read That the Federal Reserve Has Increased