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

question 27

Multiple Choice

In the monetary small open-economy model with a fixed exchange rate,an increase in the world real interest rate

• A) increases domestic output and has no effect on the domestic price level.
• B) decreases domestic output and has no effect on the domestic price level.
• C) increases the domestic price level and has no effect on domestic output.
• D) decreases the domestic price level and has no effect on domestic output.
• E) decreases the money supply and has no effect on domestic output.

---

Definitions:

Marginal Product

The additional output generated by employing one more unit of a specific input, while holding other inputs constant.

Labor

The effort of humans, including both physical and mental labor, utilized in creating goods and providing services.

Marginal Product

The increase in output resulting from a one-unit increase in the amount of a single input while holding other inputs constant.

Average Product

The total output produced per unit of a factor of production, calculated as total product divided by the quantity of the factor used.