Answer to Question #286696 in Macroeconomics for Msb

Question

Use the IS–LM diagram to describe the short run and long-run effects of the following changes

on national income, the interest rate, the price level, consumption, investment and real money

balances

a. An increase in the money supply

Answer 1

a. An increase in the money supply will shift LM curve rightwards, as a result national income will increase, the interest rate and the price level will increase, consumption and investment will increase, and real money balances will decrease.