An increase in the money supply, other things equal, shifts the ________ curve to the ________.
A) IS; right
B) IS; left
C) MP; left
D) MP; right

Question

Quizplus · Accepted Answer

An increase in the money supply increases the supply of money in the economy, which lowers interest rates. This in turn spurs investment and consumption spending, and shifts the MP (money market) curve to the right. This causes the equilibrium interest rate to decrease and the equilibrium level of output to increase, shifting the IS (investment and savings) curve to the right as well. Therefore, the correct answer is D - an increase in the money supply shifts the MP curve to the right and the IS curve to the right.

An Increase in the Money Supply, Other Things Equal, Shifts