In the monetary small open-economy model with a flexible exchange rate, an increase in the foreign price level decreases

Question

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In a small open economy with flexible exchange rates, an increase in the foreign price level would lead to an appreciation of the domestic currency (a decrease in the nominal exchange rate), as domestic goods become relatively cheaper. This change does not directly affect the domestic output or the domestic price level, as these are determined by domestic factors and policies in the short run.

In the Monetary Small Open-Economy Model with a Flexible Exchange