An Economy Starts in an Equilibrium Condition in Three Markets

question 31

Multiple Choice

An economy starts in an equilibrium condition in three markets under flexible exchange rate regime and perfect capital mobility.If the central bank in a foreign country increases its interest rate,what would happen in the domestic country?

• A) domestic currency depreciates and the IS curve shifts to the right.
• B) domestic currency appreciates and the IS curve shifts to the left.
• C) domestic currency depreciates and the LM curve shifts to the right.
• D) domestic currency appreciates and the LM curve shifts to the left.

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Definitions:

Classical Conditioning

A habituation procedure where two stimuli are paired frequently, and a reaction that initially occurs because of the second stimulus subsequently occurs due to the first stimulus exclusively.

Cognitive Map

A mental representation of one’s physical environment, facilitating navigation and understanding of spatial relationships.

Observational Learning

Learning that occurs through observing the behavior of others, also known as social learning or modeling.

Classical Conditioning

An educational method where learning happens by linking an external stimulus with a naturally existing stimulus.