Question

In the IS–LM model, a decrease in the interest rate would be the result of a(n): increase in government purchases. increase in the money supply. decrease in taxes. increase in money demand.

Answer 1

Increase in money supply

Step-by-step explanation:

Option - A: If there is a decrease in the interest rate, government purchases will decrease in the IS-LM model. Therefore, it is not the answer.

Option - B: As the interest rate decreases, people will borrow more money from the bank. The money will be flown quickly; therefore, the money supply will increase. So, it is the answer.

Option - C: There will be an increase in taxes. Therefore, it is not the answer.

Option - D: As there is an increase in the money supply, the opposite will happen with the money demand. Therefore, it cannot be the answer.