A decrease in the money supply would cause the IS curve to ________ and the LM curve to ________.
A)shift down and to the left; be unchanged
B)shift down and to the left; shift up and to the left
C)be unchanged; shift up and to the left
D)be unchanged; shift down and to the right

Question

Quizplus · Accepted Answer

The IS curve represents the relationship between interest rates and output in the goods market and is not directly affected by changes in the money supply. The LM curve, representing the money market's equilibrium, shifts up and to the left when the money supply decreases, indicating higher interest rates for any level of income, as the reduced money supply increases interest rates.

A Decrease in the Money Supply Would Cause the IS