In a Small Open Economy with a Floating Exchange Rate

question 21

Multiple Choice

In a small open economy with a floating exchange rate, a rise in government spending in the new short-run equilibrium:

• A) chokes off investment, but not by as much as the new government spending.
• B) chokes off an amount of investment just equal to the new government spending.
• C) attracts foreign capital, thus raising the exchange rate and reducing net exports, but not by as much as the new government spending.
• D) attracts foreign capital, thus raising the exchange rate and reducing net exports by an amount just equal to the new government spending.

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Definitions:

Steroidal Hormones

Steroidal hormones are a class of hormones that are synthesized from cholesterol and include steroids such as estrogen, testosterone, and cortisol, which play critical roles in body functions and development.

Inhibin

A hormone involved in the regulation of the reproductive system, notably in inhibiting the production of follicle-stimulating hormone.

Estrogen

A group of steroid hormones which promote the development and maintenance of female characteristics of the body.

Follistatin

A protein involved in muscle growth, reproduction, and the regulation of certain hormones.