In the basic model of a small open economy,if the introduction of automatic-teller machines reduces the demand for money,then net exports:
A) fall and the real exchange rate falls.
B) fall but the real exchange rate remains unchanged.
C) remain unchanged but the real exchange rate falls.
D) and the real exchange rate remain unchanged.

Question

Quizplus · Accepted Answer

In a small open economy, the introduction of ATMs reduces the demand for money, which affects the money market but not the goods market or net exports directly. Therefore, net exports and the real exchange rate remain unchanged.

In the Basic Model of a Small Open Economy,if the Introduction