In a Small Open Economy in a Flexible Exchange Rate

question 2

Multiple Choice

In a small open economy in a flexible exchange rate system with perfect capital mobility,there is complete ________ crowding-out of ________ policy.

• A)domestic,monetary
• B)domestic,fiscal
• C)international,monetary
• D)international,fiscal

---

Definitions:

Equilibrium

A state in which market supply and demand balance each other, resulting in stable prices.

Semistrong Efficient

A term from the Efficient Market Hypothesis indicating that all public information is reflected in stock prices, along with all historical data.

SML

The Security Market Line, a graphical representation of the capital asset pricing model (CAPM), showing the expected return of investments as a function of their beta or systemic risk.

Expected Return

The anticipated profit or loss from an investment over a specified period, factoring in all possible scenarios.