Exhibit: IS*-LM* and AD ​ a Small Open Economy

question 96

Multiple Choice

Exhibit: IS*-LM* and AD ​ A small open economy with a floating exchange rate is initially in equilibrium at A with IS₁*; LM₁*. Holding all else constant, if the domestic price level increases, then the _____ curve will shift to _____.

• A)LM₁*; LM₂*
• B)LM₁*; LM₃*
• C)IS₁*; IS₂*
• D)IS₁*; IS₃*

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Definitions:

Sales Tax

A tax imposed by a government on the sale of goods and services, usually calculated as a percentage of the selling price.

Merchandise

Goods that are bought and sold in the course of business.

State Sales Tax Department

The department within state government responsible for administering the collection and management of sales tax, including regulation enforcement and taxpayer assistance.

Perpetual Inventory

A system of inventory management where updates are made continuously as inventory items are bought and sold.