In the monetary small open-economy model with a flexible exchange rate, an increase in the world real interest rate
A) increases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
B) increases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
C) decreases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
D) decreases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
Question 2
A reverse Phillips Curve would consist of a
A) positive relationship between deviations from trend in real and nominal interest rates.
B) negative relationship between deviations from trend in real and nominal interest rates.
C) positive relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
D) negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
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