What is the effect of a monetary expansion on production and interest rates?
A monetary expansion shifts the LM curve downwards and does not affec...
What is the effect of a monetary expansion on production and interest rates?
A monetary expansion shifts the LM curve downwards and does not affect the IS curve. An increase in money supply causes a reduction in interest rates, which leads to an increase in investment and, through the multiplier, an increase in demand and production. A monetary expansion is more favorable for investment than a fiscal expansion.
Macroeconomia II
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