In a Small Open Economy with a Floating Exchange Rate

question 80

Multiple Choice

In a small open economy with a floating exchange rate, if the government adopts an expansionary fiscal policy, in the new short-run equilibrium:

• A) income and the exchange rate will both rise.
• B) the exchange rate will rise, but income will remain unchanged.
• C) income will rise, but the exchange rate will remain unchanged.
• D) both income and the interest rate will rise.

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Definitions:

Oversized

Describes an item, position, or trade that is larger than the normal or usual size; often used in finance to refer to large positions.

Production Equipment

Tools and machinery used in the manufacturing process to produce goods and services.

Net Working Capital

A measure of a company's short-term financial health, calculated as current assets minus current liabilities.

Sales

The total revenue generated from goods or services sold by a company during a specific period, indicating the company's performance in generating business.