Macmillan Learning , Aggregate Demand 11 End of Chapter Probhlem Use the IS-LM diagram to show 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. g a. Adjust the IS-LM pgraph below to show the shori-run effects on the interest rate (r) and national income () of an increase in the money supply. Increase in the Money Supply IRAS g . B = = 8 LS i 5 & E 4 = S i5 0 o z 4 & B 10 12 14 16 18 I Income, (in trillions ) b. Consider the short-run impact on each of the economic variables listed above. Place each variable in its correct category of "increased," "decreased," or "unchanged." @ Macmillan Learning Increased Decreased Unchangedb. Consider the short-run impact on each of the economic variables listed above. Place each variable in its correct category of "increased," "decreased," or "unchanged." @ Macmillan Learning Increased Decreased Unchanged Answer Bank interest rate price level real money balances investment national income consumption c. Given your answer in part a, how will the /S-LM graph adjust to reflect the long-run effects on the interest rate () and national income (1) of an increase in the money supply. The /S curve will shift back to its initial position. The /5 curve will shift further away from its initial position. The LM curve will shift further away from its initial position. ) The LM curve will shift back to its initial position.c. Given your answer in part a, how will the IS-LM graph adjust to reflect the long-run effects on the interest rate () and national income (1) of an increase in the money supply. The /S curve will shift back to its initial position. The /5 curve will shift further away from its initial position. The LM curve will shift further away from its initial position. O The LM curve will shift back to 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 correct category of "increased," "decreased," or "unchanged," Increased Decreased Unchanged Answer Bank real money balances investment interest rate consumption national income price level