In a Small Open Economy with Perfect Capital Mobility, If

question 33

Multiple Choice

In a small open economy with perfect capital mobility, if the Bank of Canada chooses to fix the value of the Canadian dollar, what will a contractionary monetary policy do?

• A) It will have no effect.
• B) It will shift the AD curve to the left.
• C) It will shift the AD curve to the right.
• D) It will shift both the AD curve and the short-run AS curve to the left.

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Definitions:

Labour Force Participation

The portion of the working-age population (usually those aged 15-64) that is either employed or actively looking for work.

Women

Adult human females.

Canadian Province

A principal administrative division in Canada, of which there are ten, each having its own government and responsibilities as defined by the Canadian constitution.

Québec

A province in eastern Canada with French as the primary language, known for its unique culture, legal system, and historical contributions to Canadian identity.