In the Monetary Small Open-Economy Model with a Fixed Exchange

question 22

Multiple Choice

In the monetary small open-economy model with a fixed exchange rate, an increase in the world real interest rate

• A) increases domestic output and has no effect on the domestic price level.
• B) decreases domestic output and has no effect on the domestic price level.
• C) increases the domestic price level and has no effect on domestic output.
• D) decreases the domestic price level and has no effect on domestic output.
• E) decreases the money supply and has no effect on domestic output.

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Definitions:

Creditor/Debtor

A relationship where one party (the creditor) lends money or extends credit, and the other party (the debtor) owes the money.

Articles of Incorporation

Legal documents filed with a governmental body to legally document the creation of a corporation.

Corporation

A legal entity recognized by law as separate from its owners, capable of owning property, entering contracts, and being sued.

Par-value Share

A type of share that has a face value or nominal value assigned to it, which is the minimum price at which the shares can be issued.