Assume That the FE Curve Is Flatter Than the LM

Multiple Choice

Assume that the FE curve is flatter than the LM curve. A negative internal shock shifts the IS curve leftward. Under zero sterilization, which one of the following will happen next?

A) Because of the incipient balance of payments deficit, the LM curve will shift leftward
B) Because of the incipient balance of payments surplus, the LM curve will shift rightward
C) Because of the incipient balance of payments deficit, the IS curve will shift leftward
D) Because of the incipient balance of payments surplus, the IS curve will shift rightward