The figure below shows an IS-LM-FE model for an economy with fixed exchange rates. Initially the economy was at point A, a triple intersection. Here, the FE curve is flatter than the LM curve. In order to maintain the fixed exchange rate, at point B monetary authorities must:
A)buy domestic government bonds.
B)sell domestic currency.
C)buy domestic currency.
D)sell domestic government bonds.

Question

The figure below shows an IS-LM-FE model for an economy with fixed exchange rates. Initially the economy was at point A, a triple intersection. Here, the FE curve is flatter than the LM curve.  In order to maintain the fixed exchange rate, at point B monetary authorities must:
A)buy domestic government bonds. 
B)sell domestic currency. 
C)buy domestic currency. 
D)sell domestic government bonds.

Quizplus · Accepted Answer

The Answer of The figure below shows an IS-LM-FE model for an economy with fixed exchange rates. Initially the economy was at point A, a triple intersection. Here, the FE curve is flatter than the LM curve.  In order to maintain the fixed exchange rate, at point B monetary authorities must:
A)buy domestic government bonds. 
B)sell domestic currency. 
C)buy domestic currency. 
D)sell domestic government bonds.

The Figure Below Shows an IS-LM-FE Model for an Economy