An increase in the money supply would
A)shift the LM curve to the left.
B)shift the IS curve to the right.
C)shift the IS curve to the left.
D)shift the LM curve to the right.

Question

Quizplus · Accepted Answer

An increase in the money supply shifts the LM curve to the right, as it leads to a decrease in the interest rate for a given level of income. This is because an increase in the money supply makes money more abundant and less valuable, leading to a lower interest rate. This, in turn, encourages more investment spending and consumption, which shifts the IS curve to the right. Therefore, the correct choice is D.

An Increase in the Money Supply Would