The Figure Given Below Depicts the IS-LM-FE Model with Floating

question 43

Multiple Choice

The figure given below depicts the IS-LM-FE model with floating exchange rates. The domestic currency:

• A)is under the pressure to appreciate.
• B)is under the pressure to depreciate.
• C)can remain relatively stable.
• D)is at its possible highest value in the foreign exchange market vis-à-vis other currencies.

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Definitions:

Treasury Bills

Short-term government securities with maturities ranging from a few days to 52 weeks, issued at a discount to face value.

Inflation

A measure of the rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Efficient Capital Market

A market where all relevant information is fully and immediately reflected in securities prices, ensuring that securities are always fairly priced.

Security Prices

The market value or price at which securities, such as stocks or bonds, are bought and sold.