1. For each of the following statements determine if the statement is TRUE, FALSE, or
UNCERTAIN. You must justify your answer either graphically or in words. no credit will be given
without an explanation. [5 points each]
a. In a small open economy, if the introduction of automatic teller machines reduces the demand
for money, then net exports remain unchanged, but the real exchange rate falls.
b. In a small open economy, if consumer confidence falls and consumers decide to save more,
then the real exchange rate rises, and net exports fall
c. The natural rate of unemployment cannot be affected by changes in government policy
d. Assume initially that the world interest rate is equal to the domestic interest rate of a small open
economy. A decrease in the world interest rate would lead to a fall in net exports..
1 For each of the following statements determine if the sta.pdf
1. 1. For each of the following statements determine if the statement is TRUE, FALSE, or
UNCERTAIN. You must justify your answer either graphically or in words. no credit will be given
without an explanation. [5 points each]
a. In a small open economy, if the introduction of automatic teller machines reduces the demand
for money, then net exports remain unchanged, but the real exchange rate falls.
b. In a small open economy, if consumer confidence falls and consumers decide to save more,
then the real exchange rate rises, and net exports fall
c. The natural rate of unemployment cannot be affected by changes in government policy
d. Assume initially that the world interest rate is equal to the domestic interest rate of a small open
economy. A decrease in the world interest rate would lead to a fall in net exports.
![1. For each of the following statements determine if the statement is TRUE, FALSE, or
UNCERTAIN. You must justify your answer either graphically or in words. no credit will be given
without an explanation. [5 points each]
a. In a small open economy, if the introduction of automatic teller machines reduces the demand
for money, then net exports remain unchanged, but the real exchange rate falls.
b. In a small open economy, if consumer confidence falls and consumers decide to save more,
then the real exchange rate rises, and net exports fall
c. The natural rate of unemployment cannot be affected by changes in government policy
d. Assume initially that the world interest rate is equal to the domestic interest rate of a small open
economy. A decrease in the world interest rate would lead to a fall in net exports.](https://image.slidesharecdn.com/1foreachofthefollowingstatementsdetermineifthesta-230320103317-5d20ee04/85/1-For-each-of-the-following-statements-determine-if-the-sta-pdf-1-320.jpg)
