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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Definitions:

Sherman Act

The Sherman Act is a landmark federal statute in the antitrust law of the United States, prohibiting monopolistic business practices and promoting competition.

Monopoly Power

The ability of a single company or entity to control or dominate an entire market, preventing competition.

Trust-Busting

Government activities aimed at breaking up monopolies and trusts to restore competition in the market.

World War

A large-scale war involving many countries from different parts of the world, notably occurring twice in the 20th century (World War I and World War II).