Assuming There Is Perfect Capital Mobility, Compared to a Large

question 19

Multiple Choice

Assuming there is perfect capital mobility, compared to a large open economy, a small open economy is one in which the:

• A) exchange rate is fixed.
• B) exchange rate is floating.
• C) domestic interest rate equals the world interest rate.
• D) domestic interest rate is not equal to the world interest rate.

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Definitions:

Long Run Aggregate Supply

Represents the total output an economy can produce when using its resources in the most efficient way, without changing the price levels.

Expected Price Level

Expected price level refers to the anticipation of people regarding the general price level of goods and services in the economy in the future.

Price Level

The general price level average of all goods and services in the economy currently.

Interest Rates

The cost of borrowing money or the return on saved money, usually expressed as a percentage of the amount borrowed or saved.