Aggregate Demand II: Applying the IS-LM Model - End of Chapter Problem Use the /S-LM diagram to describe both the short-run effects and the long-run effects of increasing the money supply on national income, the interest rate, the price level, consumption, investment, and real money balances. a. Adjust the IS-LM graph below to properly reflect the short-run effects on the interest rate (r) and national income (1) of an increase in the money supply. Increase in the Money Supply 10 9 CO Interest Rate, r (in $) 7 Natural Output (Y) LM Curve IS Curve N 2 4 6 8 10 12 14 16 18 20 Income, Y (in trillions $)b. Consider the short-run impact on each of the economic variables listed above. Place each variable in its proper category of "increased," "decreased," or "unchanged." Increased Decreased Unchanged Answer Bank national income consumption price level investment interest rate real money balances c. Given your answer in part a, how will the /S-LM graph adjust to reflect the long-run effects on the interest rate (r) and national income (Y) of an increase in the money supply. The LM curve will shift back to its initial position. O The IS curve will shift back to its initial position. The LM curve will shift further away from its initial position. The IS curve will shift further away from its initial position.d. Consider the long-run impact on each of the economic variables listed above relative to their initial levels before the money supply was increased. Place each variable in its proper category of "increased," "decreased," or "unchanged," Increased Decreased Unchanged Answer Bank price level investment real money balances interest rate consumption national income