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Exhibit: IS-LM to Aggregate Demand
-(Exhibit: IS-LM to Aggregate Demand) Based on the graph, which is the correct ordering of the price levels and money supplies?

Question

Use the following to answer questions : Exhibit: IS-LM to Aggregate Demand -(Exhibit: IS-LM to Aggregate Demand) Based on the graph, which is the correct ordering of the price levels and money supplies? A) P₁ > P₂ and M₁ > M₂ B) P₁ > P₂ and M₁ < M₂ C) P₁ < P₂ and M₁ > M₂ D) P₁ < P₂ and M₁ < M₂

Quizplus · Accepted Answer

In the IS-LM model, a lower price level (PS) corresponds to a higher real money supply (MS), because the value of money in terms of goods and services increases. Therefore, if the price level is higher in one scenario compared to another, the real money supply must be lower in that scenario, assuming all else equal.

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