In the IS-LM model when M/P rises, in short-run equilibrium, in the usual case the interest rate ______ and output ______.
A) rises; falls
B) rises; rises
C) falls; rises
D) falls; falls

Question

Quizplus · Accepted Answer

In the IS-LM model, an increase in M/P (real money supply) shifts the LM curve to the right, leading to a lower interest rate and higher output in the short-run equilibrium.

In the IS-LM Model When M/P Rises, in Short-Run Equilibrium