In a Small Open Economy with Perfect Capital Mobility, If

question 64

Multiple Choice

In a small open economy with perfect capital mobility, if exchange rates are fixed, how could aggregate demand be increased?

• A) by increasing government expenditures
• B) by increasing tax rates
• C) by increasing the money supply
• D) by decreasing the money supply

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Definitions:

Long Run

A period of time in economics where all factors of production and costs are variable, allowing for full adjustment to changes.

Net Capital Outflow

The difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreigners over a specific time period, indicating the flow of capital out of a country.

Mexican Assets

Financial investments or physical properties located in Mexico, including stocks, bonds, real estate, and other forms of assets.

Pesos

The official currency of Mexico and several other Latin American countries.