Suppose the Fed increases the money supply in the current period with no other policy change implemented or anticipated.This policy action will cause which of the following shifts in the IS and / or LM curves in the current period?
A)IS left; LM up
B)IS right; LM up
C)no shift in IS; LM down
D)IS left; LM down
E) IS right; LM down

Question

Quizplus · Accepted Answer

The IS curve represents the relationship between interest rates and the level of income that brings the goods market into equilibrium, and it is not directly affected by changes in the money supply. The LM curve, which represents the equilibrium in the money market, shifts down when the money supply increases because more money lowers interest rates for any given level of income, making it easier to achieve money market equilibrium.

Suppose the Fed Increases the Money Supply in the Current