The effect of monetary policy on real output is ________ due to deregulation's effect on the LM curve alone,and ________ due to deregulation's effect on the IS curve alone.

Question

Quizplus · Accepted Answer

Deregulation tends to shift the LM curve to the right, which strengthens the effect of monetary policy on real output. However, it can also lead to a reduction in investment and a weakening of the IS curve. Therefore, the overall effect on real output depends on the relative strength of these two effects. In this case, the strengthening effect of the rightward shift in the LM curve is dominant, leading to an overall strengthening effect on real output.

The Effect of Monetary Policy on Real Output Is ________