If the money supply is increased, which curve shifts in the IS—LM model? What direction does it shift? What is the intuition behind this shift?
What will be an ideal response?
An increase in the money supply shifts the LM curve down and to the right. Because the nominal money supply has risen, real money supply is higher. To get an increase in real money demand to restore equilibrium in the asset market, either income must rise or the real interest rate must fall, which can be seen as a shift of the LM curve down and to the right.
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The force that leads to zero economic profits for monopolistically competitive firms in the long run is: a. excess capacity
b. price wars among firms. c. new entry. d. excessive advertising.
If Irene can make either four chairs or one table in an hour and Greg can make either three chairs or two tables in an hour, then
A) Irene has the absolute advantage in the production of tables. B) Greg has the absolute advantage in the production of chairs. C) Irene has the comparative advantage in the production of chairs. D) Greg has the comparative advantage in the production of chairs.
An increase in money growth, holding all other factors constant, will cause
A) a reduction in seignorage. B) an increase in seignorage. C) no change in seignorage. D) an ambiguous effect on seignorage.
In the extended analysis of aggregate supply, the short-run aggregate supply curve is:
A. vertical and the long-run aggregate supply curve is horizontal. B. horizontal and the long-run aggregate supply curve is vertical. C. upsloping and the long-run aggregate supply curve is vertical. D. horizontal and the long-run aggregate supply curve is upsloping.