In a Small Open Economy with a Floating Exchange Rate

question 39

Multiple Choice

In a small open economy with a floating exchange rate, the exchange rate will depreciate if:

• A) the money supply is decreased.
• B) import quotas are imposed.
• C) government spending is increased.
• D) taxes are decreased.

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Definitions:

Direct Fixed Manufacturing Costs

Costs that are directly attributable to the production process and do not vary with the level of output but remain constant within a specific time period.

Component

A part or element of a larger system, device, or piece of equipment that is essential to its function.

Variable Expenses

Costs that change in relation to the level of activity or volume of production.

Fixed Expenses

Costs that do not vary with the level of production or sales over a short period, such as rent and salaries.