If the proportion of GDP that people choose to hold in the form of money balances is 0.25,then a $100 increase in the money supply will lead to a rightward shift in the LM curve in the amount of
A)$400.
B)$ 25.
C)$ 75.
D)$100.

Question

Quizplus · Accepted Answer

Given the proportion (k) of GDP people choose to hold in money balances is 0.25, the money multiplier is the reciprocal of this proportion, which is 1/0.25 = 4. Therefore, a $100 increase in the money supply leads to a 4 times increase in GDP, resulting in a $400 shift.

If the Proportion of GDP That People Choose to Hold