The Figure Below Shows an IS-LM-FE Model for an Economy

question 4

Multiple Choice

The figure below shows an IS-LM-FE model for an economy with fixed exchange rates. Initially the economy is at point A, a triple intersection. Here, the FE curve is steeper than the LM curve. If monetary authorities are unable to sterilize, output will end up:

• A)at Y₁.
• B)to the left of Y₁.
• C)To the right of Y1.
• D)at Y₀.

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Definitions:

Demand Price

Demand Price is the highest price that consumers are willing and able to pay for a good or service at a given quantity.

Supply Price

The minimum price at which a seller is willing to sell a good or service.

Price Floor

A government or regulatory minimum price set on goods and services, typically above the equilibrium price, to prevent prices from falling too low.

Excess Supply

A market situation where the quantity of a good or service offered for sale by producers exceeds the quantity demanded by consumers at the current price.