In a Small Open Economy with Perfect Capital Mobility, If

question 1

Multiple Choice

In a small open economy with perfect capital mobility, if the exchange rate is flexible, what would be the effect of an expansionary monetary policy?

• A) It would cause the domestic interest rate to increase permanently.
• B) It would cause the domestic interest rate to decrease permanently.
• C) It would cause the domestic interest rate to increase temporarily.
• D) It would cause the domestic interest rate to decrease temporarily.

---

Definitions:

Communication Path

The route through which a message travels from sender to receiver, which can be direct or indirect.

Leadership

The ability to guide, influence, or direct a group towards achieving a common goal.

Emotional Intelligence

The capacity to be aware of, control, and express one's emotions, and to handle interpersonal relationships judiciously and empathetically.

Common Sense

Sound practical judgment concerning everyday matters, or a basic ability to perceive, understand, and judge in a manner shared by nearly all people.