Expansief monetair beleid in het IS-LM-model

Expansionary monetary policy means the central bank increases the money supply to stimulate economic activity. This policy lowers interest rates and increases spending.

When the central bank injects more money, it creates excess liquidity in the economy. At the current interest rate, people do not want to hold all this extra money, creating an oversupply of money. To restore balance between money supply and demand, the interest rate must fall, which is why this policy shifts the LM curve.

Graphically, increasing the money supply shifts the LM curve right from LM₁ to LM₂. In the short run, the IS curve remains unchanged because it represents equilibrium in the goods market rather than in the money market. Ultimately, lower interest rates drive higher spending and income in the goods market.

The new equilibrium point moves from A to B, where the interest rate falls from r₁ to r₂, and income rises from Y₁ to Y₂.

The lower interest rate encourages firms to borrow and invest more. This rise in investment spending boosts aggregate demand and output, showing the expansionary impact of monetary policy through the IS–LM model.