Suppose We Have an Initial Equilibrium with Curves IS0 and LM0

question 18

Multiple Choice

Suppose we have an initial equilibrium with curves IS0 and LM0. The price level then rises. At every point on LM0 there is now an excess ________ real balances, which is eliminated at each income level by a ________ in the interest rate, meaning that the new LM curve is ________ LM0.

• A) demand for, fall, above
• B) demand for, fall, below
• C) demand for, rise, above
• D) supply of, rise, above
• E) supply of, fall, below

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