In a Small Open Economy with a Floating Exchange Rate

question 130

Multiple Choice

In a small open economy with a floating exchange rate, if the government imposes an import quota, then in the new short-run equilibrium the IS^* curve shifts to the right, raising the exchange rate:

• A) but not raising net exports or income.
• B) and net exports but not income.
• C) and income but not net exports.
• D) net exports and income.

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