ecChapter 12 - Chapter 12 Name Date 1 Compared to a closed...

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Chapter 12 Name: __________________________ Date: _____________ 1. Compared to a closed economy, an open economy is one that: A) allows the exchange rate to float. B) fixes the exchange rate. C) trades with other countries. D) does not trade with other countries. 2. The Mundell-Fleming model assumes that: 3. In the Mundell-Fleming model, the domestic interest rate is determined by the: 4. In a small open economy with perfect capital mobility, if the domestic interest rate were to rise above the world interest rate, then ______ would drive the domestic interest rate back to the level of the world interest rate. 5. In the Mundell-Fleming model on a Y e graph, the curves labeled IS * and LM * are labeled that way as a reminder that: A) the price level is held constant at the world price level p *. B) the interest rate is held constant at the world interest rate r *. C) the exchange rate is held constant at the world exchange rate e *. D) output is held constant at the full employment level. 6. Under a floating system, the exchange rate: 7. In a small open economy with a floating exchange rate, an effective policy to decrease equilibrium output is to: 8. In a small open economy with a floating exchange rate, the exchange rate will depreciate if:
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