Figure 13.2 -Refer to Figure 13.2.Starting from an equilibrium point A,if the IS curve shifts to the left to IS₂, A) there will be official settlement deficit which pressures the domestic currency to depreciate. B) there will be official settlement deficit which pressures the domestic currency to appreciate. C) there will be official settlement surplus which pressures the domestic currency to depreciate. D) there will be official settlement surplus which pressures the domestic currency to appreciate.

Question

Quizplus · Accepted Answer

When the IS curve shifts to the left, it indicates a decrease in domestic investment or consumption, leading to a reduction in aggregate demand. This typically results in a decrease in the demand for domestic currency for transaction purposes, leading to a depreciation of the domestic currency. Additionally, a leftward shift in the IS curve can lead to a trade balance improvement (if imports decrease more than exports), but the immediate effect on official settlements is a deficit, as the economy adjusts, putting pressure on the domestic currency to depreciate.

Figure 13.2 -Refer to Figure 13.2.Starting from an Equilibrium Point A,if the Point