From an initial IS-LM equilibrium with a normally-sloped IS curve and a vertical LM curve,the money supply increases.A the new IS-LM equilibrium we have
A)higher income and a lower interest rate.
B)higher income and an unchanged interest rate.
C)an unchanged income and a lower interest rate.
D)lower income and an unchanged interest rate.
E)an unchanged income and a higher interest rate.

Question

Quizplus · Accepted Answer

When the money supply increases, the LM curve shifts to the right. As a result, the new equilibrium occurs at the intersection of a flatter IS curve and a steeper LM curve. This leads to a lower interest rate and a higher level of income. Therefore, the correct answer is A, higher income and a lower interest rate.

From an Initial IS-LM Equilibrium with a Normally-Sloped IS Curve