In a Small Open Economy with a Floating Exchange Rate

question 31

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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Definitions:

Bowed Outward

Refers to the shape of the production possibility frontier that demonstrates increasing opportunity costs as resources are reallocated from producing one good to another.

Tennis Rackets

Sporting equipment consisting of a handled frame with a open hoop where a network of strings is stretched tightly.

Production Of Socks

The manufacturing process of creating socks, involving various steps from the sourcing of materials to the final product packaging.

Production Possibilities Frontier

A graphical representation showing the maximum combinations of goods and/or services that can be produced with a fixed set of resources.