Question

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

______.
A) IS; shifts to the right
B) IS; does not shift
C) LM: shifts to the right
D) LM; does not shift

Answer 1

Answer: The correct answer is "C) LM: shifts to the right".

Explanation: An increase in the money supply shifts the LM curve to the right, and the aggregate demand curve shifts to the right.

As the supply of money increases, the LM curve shifts to the right, establishing a new equilibrium point in which production is going to be higher, thus increasing aggregate demand.