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

Question

Quizplus · Accepted Answer

When the intersection of the IS and LM curves is to the left of the FE line, it indicates an excess supply of goods and services, labor, and money in the economy. A decrease in the price level will increase the real money supply, causing the LM curve to shift down and rightward. This shift will also decrease the interest rate, which stimulates investment and consumption, ultimately shifting the IS curve up and to the right. As a result, both the goods market and the money market move towards equilibrium, and the economy moves towards the FE line.

Suppose the Intersection of the IS and LM Curves Is