If Short-Run Equilibrium in the Mundell-Fleming Model Is Represented by a Graph

Multiple Choice

If short-run equilibrium in the Mundell-Fleming model is represented by a graph with Y along the horizontal axis and the exchange rate along the vertical axis, then the LM^* curve:

A) slopes upward and to the right because at a higher income a higher interest rate is needed to increase velocity.
B) is vertical because monetary velocity is independent of the interest rate.
C) is vertical because the exchange rate does not enter into the LM^* equation.
D) slopes upward and to the right because a higher exchange rate leads to a higher income.