The figure below shows an IS-LM-FE model for an economy with fixed exchange rates. Initially the economy is at Point A, a triple intersection. Here, the FE curve is steeper than the LM curve.
Assume that the economy was initially at Point A. Which of the following could have caused the economy to move to and remain at Point B?
A. Expansionary monetary policy with sterilization
B. Contractionary fiscal policy without sterilization
C. Expansionary monetary policy without sterilization
D. Expansionary fiscal policy with sterilization
Answer: D
You might also like to view...
If the GDP deflator in the United States is 114, and the GDP deflator in Ukraine is 142, which of the following exchange rates would the theory of purchasing power parity predict in the long run? (The Ukrainian currency is the hryvnia.)
A) 0.80 hryvnias per dollar B) 1.25 hryvnias per dollar C) 2.80 hryvnias per dollar D) 28 hryvnias per dollar
The marginal rate of technical substitution is measured by
A) the relative input prices. B) the slope of the isocost line. C) the slope of the isoquant. D) the ratio of the product's price to the product's cost of production.