In the IS-LM model when M rises but P remains constant, 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 the money supply (M) with a constant price level (P) leads to a rightward shift of the LM curve, which typically results in a lower interest rate and higher output in the short-run equilibrium.

In the IS-LM Model When M Rises but P Remains