In a Small Open Economy with a Floating Exchange Rate

question 21

Multiple Choice

In a small open economy with a floating exchange rate, a rise in government spending in the new short-run equilibrium:

• A) chokes off investment, but not by as much as the new government spending.
• B) chokes off an amount of investment just equal to the new government spending.
• C) attracts foreign capital, thus raising the exchange rate and reducing net exports, but not by as much as the new government spending.
• D) attracts foreign capital, thus raising the exchange rate and reducing net exports by an amount just equal to the new government spending.

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Definitions:

Turbulent Environment

A dynamic and unpredictable external business environment characterized by rapid changes and uncertainties.

General Environment

The broad external conditions (economic, technological, sociocultural, and political/legal) that affect organizations and their functioning.

Specific Environment

The external factors and influences that are directly relevant and impactful to an organization's operations, including competitors, customers, and suppliers.

Dynamic Force

Represents the energy or motivation that drives change and movement within various contexts, often related to organizations or personal development.