In the Monetary Small Open-Economy Model with a Fixed Exchange

question 44

Multiple Choice

In the monetary small open-economy model with a fixed exchange rate,an increase in the foreign price level

• A) increases the domestic money supply and increases the domestic price level.
• B) increases the domestic money supply and decreases the domestic price level.
• C) decreases the domestic money supply and increases the domestic price level.
• D) decreases the domestic money supply and decreases the domestic price level.
• E) the domestic price level decreases in proportion to the increase in the foreign price level.

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Definitions:

Increase

A situation where there is a rise in magnitude, quantity, or degree.

Quantity Demanded

A specific quantity of a good that buyers are interested in purchasing at a certain price point.

Law of Demand

The principle that, ceteris paribus, there is an inverse relationship between the price of a good and the quantity demanded.

Quantity Demanded

The amount of a product or service consumers are willing to buy at a given price.