In a Small Open Economy with a Floating Exchange Rate

question 130

Multiple Choice

In a small open economy with a floating exchange rate, if the government imposes an import quota, then in the new short-run equilibrium the IS^* curve shifts to the right, raising the exchange rate:

• A) but not raising net exports or income.
• B) and net exports but not income.
• C) and income but not net exports.
• D) net exports and income.

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Definitions:

Perceptual Distortion

A cognitive bias that affects how one perceives reality, often leading to inaccuracies or misinterpretations.

Selective Attention

The process by which one focuses on certain stimuli within the environment while ignoring others, thereby allocating cognitive resources to relevant information.

Halo Effect

a type of cognitive bias where the perception of one positive quality in a person or thing influences the overall perception of that entity as positive.

Perceptual Distortion

Occurs when an individual's personal biases, prejudices, or expectations alter the way they perceive reality.