LM¹

LM² (P=100)

Price adjustments

New equilibrium after
  price adjustment

Temporary increase
      in output

Initial equilibrium

  Equilibrium after
monetary expansion

IS

FE

Real interest rate, r

Output, Y

Effects of A Monetary Expansion

A = Intersect(xAxis, yAxis)
B = Point(xAxis)
a = Segment(A, B)
C = Point(yAxis)
b = Segment(A, C)
D = Point(a)
E = (4, 9)
c = Segment(D, E)
g = If(1.5 < x < 6, (8 * 4^(-0.7) + 1) / 4^(1.5) * x^(1.5) + 1)
d = 1.94 (slider from 0 to 2, step 0.01)
f = If(1.5 < x < 9, 8 * x^(-0.7) + 2)
h = If(1.5 + d < x < 6 + d, g(x - d))
l = If(1.5 < x < 6, (8 * 4^(-0.7) + 1) / 4^(1.5) * x^(1.5) + 1)
G = Intersect(g, l, (5.870909090909073, 8.168487084453252))
H = Intersect(g, l, (4.507272727272714, 5.822144605030135))
K = Intersect(g, l, (5.089090909090894, 6.785351990264599))
F = Intersect(f, h, (5.523502909962162, 4.4184648291826925))
I: (x(F) + 0.51, h(x(F) + 0.51))
J: (x(F) + 1.09, h(x(F) + 1.09))
u = Vector(H, I)
v = Vector(J, K)
i: 20 * d
text1: "  Money supply
increase by " + i + "%"
q: 100 + i
text3: "LM¹ (P=" + q + ")"
L: (x(F) + 2, h(x(F) + 2))
text5: "Price rise
 by " + i + "%"
e = false
M = Intersect(f, l, (4, 5.031433133020796))
N: (x(F), 0)
j = Segment(F, N)
O = Intersect(g, f, (4, 5.031433133020796))
text10: "Increase the money
supply by " + i + "%"