A change in the monetary policy shifts the:
A) IS curve
B) LM curve
C) BP curve
D) None of the above

Question

Quizplus · Accepted Answer

A change in the monetary policy will affect the LM curve, which shows the combinations of interest rates and output levels that result in equilibrium in the money market. When the central bank adjusts the money supply, it will affect the interest rate and hence the position of the LM curve in the output-interest rate space. The IS curve shows the combinations of interest rates and output levels that result in equilibrium in the goods market, while the BP curve shows the combinations of interest rates and output levels that result in equilibrium in the balance of payments. However, a change in the monetary policy does not directly affect these curves.

A Change in the Monetary Policy Shifts The