In a short-run model of a large open economy with a floating exchange rate, if business expectations become pessimistic, this leads to a fall in: A) the exchange rate and a fall in net exports but has no effect of income B) the money supply and an increase in income but has no effect on the exchange rate C) income, the interest rate, and net exports but a decrease in investment and in the exchange rate D) income, the interest rate, and the exchange rate but an increase in net exports
In a short-run model of a large open economy with a floating exchange rate, if business expectations become pessimistic, this leads to a fall in: A) the exchange rate and a fall in net exports but has no effect of income B) the money supply and an increase in income but has no effect on the exchange rate C) income, the interest rate, and net exports but a decrease in investment and in the exchange rate D) income, the interest rate, and the exchange rate but an increase in net exports
Chapter22: International Finance
Section: Chapter Questions
Problem 6QP
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In a short-run model of a large open economy with a floating exchange rate, if business expectations become pessimistic, this leads to a fall in:
A) the exchange rate and a fall in net exports but has no effect of income
B) the money supply and an increase in income but has no effect on the exchange rate
C) income, the interest rate, and net exports but a decrease in investment and in the exchange rate
D) income, the interest rate, and the exchange rate but an increase in net exports
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