If the supply of money increases, what happens in the IS-LM framework?
A) The IS curve shifts right.
B) The LM curve shifts right.
C) The IS curve shifts left.
D) The LM curve shifts left.

Question

Quizplus · Accepted Answer

In the IS-LM framework, an increase in the supply of money leads to a decrease in the interest rate. This, in turn, increases the demand for goods and services, leading to an increase in output and a shift in the LM curve to the right. The IS curve remains unchanged. Therefore, the correct answer is B.

If the Supply of Money Increases, What Happens in the IS-LM