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If the supply of money increases, what happens in the IS-LM framework? The LM curve shifts...

If the supply of money increases, what happens in the IS-LM framework?

The LM curve shifts left.

The LM curve shifts right.

The IS curve shifts right.

The IS curve shifts left.

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Answer #1

Answer- The LM curve shifts right

The IS-LM(investment saving- liquidity prefrence money supply) model shows the equilibrium of the market for goods and services and money supply. It shows relationship between real output and interest rate.

The IS curve: the market for goods and services

The LM curve: the market for money

When money supply increases the LM curve shifts to right. It is because when money supply increases the interest rate will decrease which leads to LM curve shifts to right and thus increase in output.

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