Suppose the intersection of the IS and LM curves is to the right of the FE line.An increase in the price level would most likely eliminate a disequilibrium among the asset,labour,and goods markets by
A)shifting the LM curve up.
B)shifting the IS curve up.
C)shifting the IS curve down.
D)shifting the FE curve to the left.

Question

Quizplus · Accepted Answer

When the intersection of IS and LM curves is to the right of FE line, there is excess demand, which leads to an increase in the price level. This increase in the price level would cause an increase in money demand, which shifts the LM curve up until the equilibrium is reached at the intersection of IS, LM, and FE curves. Therefore, the best choice would be to shift the LM curve up (Option A).

Suppose the Intersection of the IS and LM Curves Is