In a Small Open Economy with a Fixed Exchange Rate

question 117

Multiple Choice

In a small open economy with a fixed exchange rate, if the central bank tries to increase the money supply, then in the new short-run equilibrium:

• A) income rises.
• B) income falls.
• C) the exchange rate falls.
• D) income remains constant.

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Definitions:

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life.

Ratio Analysis

A quantitative method of gaining insight into a company's liquidity, operational efficiency, and profitability by comparing financial statement items.

Financial Statements

Official records that outline a company's financial activities and conditions, including the balance sheet, income statement, and cash flow statement.

Firm's Financial Position

The status of a company's assets, liabilities, and equity at a given point in time, as reflected in its financial statements.