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

question 31

Multiple Choice

In the monetary small open-economy model with a fixed exchange rate, a temporary decrease in domestic total factor productivity in the absence of any other shocks

• A) increases the current account surplus and increases the domestic money supply.
• B) increases the current account surplus and decreases the domestic money supply.
• C) increases the domestic money supply and decreases the current account surplus.
• D) decreases the domestic money supply and decreases the current account surplus.
• E) decreases the current account surplus and increases the price level.

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Definitions:

Unemployment Rate

The ratio of the number of people classified as unemployed to the total labor force.

Inflation

The rate at which the general level of prices for goods and services is rising, subsequently eroding purchasing power.

Bargaining Power

The capacity of one party to influence the terms and conditions of an agreement in its favor during negotiations with another party.

Price Concessions

Adjustments made to the original price of a good or service in response to negotiating tactics or market demands.