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,labor,and goods markets by
A)shifting the LM curve up and to the left.
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 right of the FE line, it indicates an excess demand for goods and labor. As a result, prices tend to rise, causing an upward shift in the LM curve due to the increasing demand for money. Therefore, the most likely solution to eliminate the disequilibrium would be to shift the LM curve up and to the left, reducing the excess demand for goods and labor and moving the economy closer to the FE line.

Suppose the Intersection of the IS and LM Curves Is