In a Small Open Economy with a Floating Exchange Rate

question 76

Multiple Choice

In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending:

• A) raises the interest rate, so that income must rise to maintain equilibrium in the money market.
• B) raises the interest rate so that net exports must fall to maintain equilibrium in the goods market.
• C) cannot change the interest rate so that net exports must fall to maintain equilibrium in the goods market.
• D) cannot change the interest rate so income must rise to maintain equilibrium in the money market.

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Definitions:

Mischel

Refers to Walter Mischel, a psychologist known for his work on personality theory and cognitive-affective behavior.

Self-Efficacy

An individual's belief in their ability to succeed in specific situations or accomplish a task.

Self-Concept

An individual's perception of self, encompassing beliefs, feelings, and thoughts about one's identity and attributes.

Bandura

A psychologist known for his work on social learning theory, emphasizing the role of observational learning, imitation, and modeling in behavior.