The LM curve will shift to the right, if there is a(n):
A) decrease in money supply.
B) increase in real money demand.
C) increase in money supply.
D) increase in output.

Question

Quizplus · Accepted Answer

An increase in money supply will cause interest rates to fall, leading to an increase in investment and consumption spending, thereby increasing output. As a result, the LM curve will shift to the right. A decrease in money supply (choice A) would cause interest rates to rise and output to decrease, shifting the LM curve to the left. An increase in real money demand (choice B) would have no effect on the position of the LM curve, but would instead cause a movement along the LM curve to a higher interest rate level. Finally, an increase in output (choice D) would shift the IS curve, but would have no direct impact on the position of the LM curve.

The LM Curve Will Shift to the Right, If There