Assume That the FE Curve Is Flatter Than the LM

question 28

Multiple Choice

Assume that the FE curve is flatter than the LM curve. A negative external capital-flow shock shifts the FE curve left. Under zero sterilization, which one of the following will happen next?

• A)Because of the incipient balance of payments deficit, LM curve will shift leftward
• B)Because of the incipient balance of payments surplus, LM curve will shift rightward
• C)Because of the incipient balance of payments deficit, IS curve will shift rightward
• D)Because of the incipient balance of payments surplus, IS curve will shift leftward

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