In the New Keynesian Open Economy Model with a Fixed

question 60

Multiple Choice

In the New Keynesian open economy model with a fixed exchange rate, suppose there is an increase in money demand. Which of the following happens?

• A) nothing
• B) the money supply increases
• C) the exchange rate appreciates
• D) output increases
• E) output decreases

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Definitions:

Direct Investment

The purchase of substantial stock in a foreign firm or the control of assets in another country, often to establish a business presence.

Foreign Subsidiary

A company that is owned or controlled by another company located in a different country, operating as an extension of the parent corporation abroad.

Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task or business operation.