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Posted: August 22nd, 2023
Suppose that at present an economy is at some distance
Suppose that at present an economy is at some distance from the equilibrium position where theIS andLM curves intersect, and is on neither theIS curve nor theLM curve. Which of the following most accurately states what will happen?a)The economy will move rapidly to the equilibrium.b)The economy will move rapidly to the point on the LM curve that applies to the current level of output, and then move slowly along the LM curve to the equilibrium.c)The economy will move rapidly to the point on the IS curve that applies to the current rate of interest, and then move slowly along the IS curve to the equilibrium.d) The economy will move slowly to the new equilibrium, and will not be on either the IScurve or the LM curve until it reaches this equilibrium.
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