In a Small Open Economy with a Fixed Exchange Rate

question 35

Multiple Choice

In a small open economy with a fixed exchange rate, if the country devalues its currency, then in the new short-run equilibrium the exchange rate ______, and the LM* curve shifts to the ______.

• A) decreases; left
• B) increases; left
• C) decreases; right
• D) increases; right

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Definitions:

Cosurety

One of two or more individuals or entities jointly responsible for fulfilling the obligation of a surety, sharing liability for ensuring the performance or payment of an obligation.

Right of Contribution

The legal right of a defendant or debtor to collect from co-defendants or co-debtors their share of a common liability or debt.

Right of Subrogation

is a legal right allowing one party to assume another's rights in order to pursue recovery from a third party responsible for a loss.

Debtor's Surety

An individual or entity that guarantees the debt of a borrower, agreeing to be responsible for the repayment if the debtor fails to settle the debt.