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:

Principle Homeostasis

The regulatory principle that organisms maintain a stable internal environment despite external changes.

Hierarchy Needs

A theory in psychology, proposed by Abraham Maslow, suggesting that people are motivated by five basic categories of needs: physiological, safety, love/belonging, esteem, and self-actualization, which form a hierarchy.

Self-actualization

The realisation or fulfilment of one's talents and potentialities, considered as a drive or need present in everyone.

Maslow's Hierarchy

A theory of psychological health predicated on fulfilling innate human needs in a priority, culminating in self-actualization.