In a Small Open Economy with a Floating Exchange Rate

question 94

Multiple Choice

In a small open economy with a floating exchange rate, if the government increases the money supply, then in the new short-run equilibrium the:

• A) interest rate falls and the level of investment rises.
• B) exchange rate falls and net exports increase.
• C) interest rate falls but the level of investment does not rise.
• D) exchange rate falls but net exports do not increase.

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Definitions:

Uniform Commercial Code

A complete collection of regulations that oversee every business transaction within the United States.

Electronic Banking

The conduct of banking activities through electronic means, including online banking, ATMs, and electronic payments.

Drawer

In the context of banking and finance, the person who writes or issues a check or draft instructing the drawee to pay someone else.

Drawee

The party in a transaction upon whom a check, draft, or bill of exchange is drawn and is responsible for its settlement.