Question

If money is injected into the economy. How would this be reflected in a IS-LM model

Answer 1

When the money is injected into the economy it will increase the money supply in the economy which will shift the LM curve to the rightward. As LM curve shifts rightwards, the interest rate prevailing in the economy will decrease which leads to an increase in the demand for loanable funds, therefore, the output in the economy will increase. So, as a result, when the money is injected into the economy it will decrease the interest rate and increase the output.