In the Monetary Small Open-Economy Model,a Fixed Exchange Rate Insulates

question 28

Multiple Choice

In the monetary small open-economy model,a fixed exchange rate insulates the domestic price level from

• A) both real and nominal shocks from abroad.
• B) real shocks from abroad, but not nominal shocks from abroad.
• C) nominal shocks from abroad, but not from real shocks from abroad.
• D) neither real nor nominal shocks from abroad.
• E) increases in foreign price levels, but not from increases in foreign interest rates.

---

Definitions:

Promissory Note

An economic tool comprising a formal pledge by one party to give a specific amount of money to another, redeemable upon request or at a predetermined time.

Discounted

Refers to the reduction of an item's price or the present value of future cash flows discounted back to the present value.

Proceeds

The amount of money brought in from a transaction or sale, before any expenses are deducted.

Compounded Semi-annually

The process of applying interest to both the principal amount and any accumulated interest every six months.