In a Small Open Economy with a Floating Exchange Rate

question 94

Multiple Choice

In a small open economy with a floating exchange rate, if the government increases the money supply, then in the new short-run equilibrium the:

• A) interest rate falls and the level of investment rises.
• B) exchange rate falls and net exports increase.
• C) interest rate falls but the level of investment does not rise.
• D) exchange rate falls but net exports do not increase.

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Definitions:

Catastrophic Thinking

An irrational thought leading individuals to believe that something is far worse than it actually is.

Primary Appraisal

The initial evaluation process where an individual assesses the significance of a stressor or threatening event.

Multifactorial Causation

The concept that various factors contribute to the outcome of events or conditions, including biological, psychological, and environmental influences.

Subjectivity Of Experience

Refers to the idea that individuals perceive, interpret, and experience events and realities in unique ways based on personal beliefs, feelings, and thoughts.