Multiple Choice
In an IS-LM model with flexible exchange rates and perfect capital mobility, a restriction in money supply will
A) decrease the level of output permanently but increase the interest rate only temporarily
B) decrease both the level of output and the interest rate but only temporarily
C) temporarily decrease the level of output and temporarily increase the interest rate
D) shift the LM-curve first to the left and then back to the right as the central bank is forced to buy foreign currency reserves
E) both C and D
Correct Answer:
Verified
Correct Answer:
Verified
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