Use the Following to Answer Questions :
Exhibit: Risk Premium $I S _ { 1 } ^ { * }$

question 26

Multiple Choice

Use the following to answer questions :
Exhibit: Risk Premium
-(Exhibit: Risk Premium) A small open economy with a floating exchange rate is initially in equilibrium at A with $I S _ { 1 } ^ { * }$ $L M _ { 1 } ^ { * } .$ If there is an increase in the risk premium, then $L M _ { 1 } ^ { * }$ will shift to _____ and $I S _ { 1 } ^ { * }$ will shift to _____.

• A) \(L M _ { 2 } ^ { * } , I S _ { 2 } ^ { * }\)
• B) \(L M _ { 2 } ^ { * } , I S _ { 3 } ^ { * }\)
• C) \(L M _ { 3 } ^ { * } , I S _ { 2 } ^ { * }\)
• D) \(L M _ { 3 } ^ { * } , I S _ { 3 } ^ { * }\)

Analyze different scenarios to determine the elasticity type and its impact on quantity demanded.

Distinguish between substitutes and complements based on cross-price elasticity of demand values.

Interpret the effects of income changes on the demand for goods using income elasticity.

Evaluate the significance of elasticity in real-life scenarios, such as market strategy and consumer choice.