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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Which term describes the phases of expansion and contraction in an economy over time?
A. Recessions B. Prosperity C. Total product oscillations D. Business cycles
Marginal product of labor is:
a. the extra output produced by an additional worker, all else unchanged. b. the extra wage earned by an additional worker, all else unchanged. c. the total output produced when an extra worker is hired. d. the total revenue earned when an extra worker is hired.