ECON 2H03 Lecture Notes - Lecture 13: Floating Exchange Rate, Risk Premium, Money Supply
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In a small open economy with a fixed exchange rate, if the country devalues its currency, then in the new short-run equilibrium the exchange rate ______, and the. Question 9 options: decreases; left increases; left decreases; right increases; right. In the mundell fleming model, if political turmoil raises the risk premium in a country"s interest rate, then the exchange rate will: Question 11 options: increase. decrease. remain constant. either increase or decrease, depending on whether the is* or lm* curve shifts more. A revaluation of a currency under a fixed-exchange-rate system occurs when the level at which the currency is fixed is: increased. decreased. allowed to float. kept fixed within a band. The introduction of a stylish new line of cars made in europe, which makes some consumers prefer foreign cars over domestic cars, will, according to the mundell . Fleming model with fixed exchange rates, lead to: