An increase in the money supply shifts the __ curve to the right, and the aggregate demand curve ____.

Question

BlackTom AI · Accepted Answer

We start by restating the scenario in question: an increase in the money supply shifts a specific curve to the right, and the aggregate demand curve experiences a change in position as a result.
Option 1: IS; shifts to the right. The IS curve represents equilibrium in the goods market, linking output to interest rates given fiscal and monetary stance. An increase in the money supply primarily affects the money market and lowers interest rates, which in turn tends to raise investment and output, shifting the IS curve itself? In standard IS-LM analysis, monetary expansion does not shift the IS curve; it moves the economy along the IS curve by changing interest rates, while shifting the LM curve to the right. Therefore, this option incorrectly assigns the monetary shift to the IS curve rather than the LM curve.
Option 2: IS; does not shift. As above, monetary expansion influences the LM curve (money market) rather than directly causing the IS curve to shift. Saying the IS curve does not shift ignores the indirect effects through interest rates on investment and demand, but the canonical result for a pure monetary expansion is a shift in the LM curve, not the IS curve. This makes the statement inaccurate.
Option 3: LM: shifts to the right. This aligns with standard macroeconomic theory: increasing the money supply lowers domestic interest rates, which increases the quantity of money supplied relative to money demand at each price level, shifting the LM curve to the right (or downward, depending on axes) in the IS-LM framework. The rightward shift captures a higher real money balances at any given income, promoting higher equilibrium output and lower interest rates.
Option 4: LM; does not shift. If the money supply increases, the money market clears at a higher level of money balances, which translates into a shifting LM curve. Stating that the LM curve does not shift contradicts the core mechanism of monetary expansion within the IS-LM model, making this option incorrect.
In summary, the only option that correctly reflects the standard IS-LM response to an increase in the money supply is the one that identifies the LM curve shifting to the right, while recognizing that the IS curve does not shift directly due to monetary changes alone.

BU.220.610.51.FA25 M8 Final Comprehensive Exam - Multiple Choice Questions- Requires Respondus LockDown Browser

An increase in the money supply shifts the curve to the right, and the aggregate demand curve __.

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Similar Questions

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output [ Select ] .

The IS curve shifts when any of the following economic variables change except:

When the LM curve is drawn, the quantity that is held fixed is:

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will , shifting the __ curve to the right and returning output to the natural level.

In the IS-LM model, a decrease in government purchases leads to a(n) in planned expenditures, a(n) in total income, a(n) in money demand, and a(n) in the equilibrium interest rate.

According to the IS-LM model, if Congress raises taxes but the Fed wants to hold income constant, then the Fed must ______ the money supply.

Other things equal, a given change in money supply has a larger effect on demand the:

The tax decrease makes the interest rate and investment in this model.

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BU.220.610.51.FA25 M8 Final Comprehensive Exam - Multiple Choice Questions- Requires Respondus LockDown Browser

An increase in the money supply shifts the __ curve to the right, and the aggregate demand curve ____.

View Explanation

Log in for full answers

Similar Questions

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output [ Select ] .

The IS curve shifts when any of the following economic variables change except:

When the LM curve is drawn, the quantity that is held fixed is:

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will __, shifting the ____ curve to the right and returning output to the natural level.

In the IS-LM model, a decrease in government purchases leads to a(n) ______ in planned expenditures, a(n) ______ in total income, a(n) ______ in money demand, and a(n) ______ in the equilibrium interest rate.

According to the IS-LM model, if Congress raises taxes but the Fed wants to hold income constant, then the Fed must ______ the money supply.

Other things equal, a given change in money supply has a larger effect on demand the:

The tax decrease makes the interest rate ______ and investment ______ in this model.

More Practical Tools for Students Powered by AI Study Helper

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An increase in the money supply shifts the curve to the right, and the aggregate demand curve __.

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will , shifting the __ curve to the right and returning output to the natural level.

In the IS-LM model, a decrease in government purchases leads to a(n) in planned expenditures, a(n) in total income, a(n) in money demand, and a(n) in the equilibrium interest rate.

The tax decrease makes the interest rate and investment in this model.