In a Long-Run Model of a Small Open Economy,deficit Reduction

question 9

Multiple Choice

In a long-run model of a small open economy,deficit reduction
I: leads to higher living standards.
II: leads to a fall in the country's real exchange rate once the new full-equilibrium level of foreign debt is reached.

• A) I is true; II is not.
• B) II is true; I is not.
• C) Both I and II are true.
• D) Neither I nor II is true.

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