In a Small Open Economy with a Fixed Exchange Rate

question 35

Multiple Choice

In a small open economy with a fixed exchange rate, if the country devalues its currency, then in the new short-run equilibrium the exchange rate ______, and the LM* curve shifts to the ______.

• A) decreases; left
• B) increases; left
• C) decreases; right
• D) increases; right

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Definitions:

Proton Acceptor

A substance that can receive or take up protons (H+ ions), playing a critical role in acid-base reactions.

Curved Arrow Formalism

Curved arrow formalism is a notational system used in organic chemistry to depict the movement of electron pairs during chemical reactions, indicating bond formation and breakage.

Electron Pairs

Refers to two electrons occupying the same orbital in an atom or molecule, usually forming a covalent bond or participating in lone pairs.

Confidence Interval

A selection of values, based on sample statistics, forecasted to incorporate the value of an unknown population parameter.