My thoughts on a new screen size for iMac are in other threads - I won't repeat them here at length (yet).
A 23" iMac achieved by reducing the bezels of the existing 21.5" display doesn't sound very logical. That implies Apple would large re-use the existing form factor (which accommodates hard drives) instead of designing something completely new.
Easier perhaps to bump the storage on these existing machines and keep hard drives in the supply chain for a little while longer - especially in these times?
As I have calculated before, a 4.6k 24" 219ppi 'Retina' panel could be a 'cheaper' 27" 5k model.
If you look at Apple's direction on the iPad and iPhone they have base models with 'Pro' models sitting atop them. For iPads they have a middle model iPad Air that sits between the budget models and the Pro iPads.
I call iMac Air with all SSD and not 'cheaper' at all
A 32" Retina iMac would have a 6k panel the size of the Apple Pro Display XDR... (unlikely in my opinion).
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The lowest end iMac is a disgrace at this point. Apple has been cleaning up/modernising the Mac lineup, but they’re certainly dragging their feet on this one.
A new 23” 4K with SSD (only) would be a welcome addition.
They could just flat out price cut the existing 21.5" models or spec jump the lineup by discontinuing the non Retina display and then cutting the price of the other two models. It would make a nice gap for 2 SKUs under a 27".
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Maybe the iMac will be the almost-retina LG screen from the 23.5" Ultrafine, complete with mechanical hard drive.
That's not Retina though. They'll keep the 219ppi so a 23" could be around 4.6K
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They're going to release a new sized iMac and it's going to be a low cost option? That doesn't make sense.
Cheaper than a 27"

- maybe
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I doubt a 4.5K 23” iMac would be lower priced than the current 21.5”.
The 21.5” 1080p remains in the lineup, maybe drops to $999? The $1,299 4K model is replaced by $1,399 or $1,499 4.5K model.
Base model is SSD only. If you want 1TB or 2TB capacity, you’ll have to pay big bucks. No more fusion drives.
As I argued in another thread, a new 'iMac Air' configuration with a 24" 4.6K panel at 219PPI allows Apple to start these machines with 256Gb or 512Gb SSD and no HDD. No confusion from traditional 21.5" or 27" buyers over storage quality.
Let's arguably say it apes the Pro Display XDR in design language, even better if there's a RAM access door.
Who's buying one?