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

question 23

Multiple Choice

In the monetary small open-economy model with a flexible exchange rate,an increase in the exchange rate has which impact on domestic money demand?

• A) It increases it.
• B) It decreases it.
• C) It has no impact.
• D) It depends.

---

Definitions:

APR

Annual Percentage Rate, which represents the annualized cost of credit including interest and other charges, helping consumers compare the cost of loans.

Continuous Compounding

Continuous compounding refers to the process of calculating interest on an investment, where the interest amount is reinvested and earns additional interest continuously, leading to exponential growth.

Sharpe Ratio

A metric used to assess the risk-adjusted return of an investment portfolio.

Small U.S. Stocks

Small U.S. stocks are shares issued by companies with relatively small market capitalization, typically considered to offer higher growth potential but with increased risk compared to large-cap stocks.