Use the IS-LM model to analyse the short-run effect of a financial crisis and assume that the economy is initially at a medium-run equilibrium, Y 0 and i0. In the event of a rise in the credit default risk premium, what happens to the economy when the central bank maintains the money supply?
a. Both the IS and LM curves shift to the left and a fall in output.
b. a leftward shift in the IS curve and a fall in output
c. a leftward shift in the LM curve and a fall in output.
d. None of the above.