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

question 46

Multiple Choice

In the monetary small open-economy model with a fixed exchange rate,a temporary decrease in domestic total factor productivity in the absence of any other shocks

• A) increases the current account surplus and increases the domestic money supply.
• B) increases the current account surplus and decreases the domestic money supply.
• C) increases the domestic money supply and decreases the current account surplus.
• D) decreases the domestic money supply and decreases the current account surplus.

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Definitions:

Circular Flow

An economic model that depicts how money moves through the economy, from production to income to consumption and back to production.

Net Domestic Product

Gross domestic product minus depreciation.

Depreciation

The process by which the value of an asset decreases over time, often due to wear and tear or obsolescence.

Transfer Payments

Payments made by the government to individuals without the expectation of goods or services in return, such as welfare benefits and social security.