In a small open economy with a flexible exchange rate, a monetary injection causes which of the following?
A)It causes the dollar to appreciate.
B)It causes net exports to decline.
C)It causes an additional decrease in demand for Canadian-produced goods that is not realized in a closed economy.
D)It causes a shift of the aggregate demand curve farther to the right than in a closed economy.

Question

Quizplus · Accepted Answer

In a small open economy with a flexible exchange rate, a monetary injection typically leads to lower interest rates, causing the currency to depreciate, which increases net exports. This results in a larger shift of the aggregate demand curve to the right compared to a closed economy.

In a Small Open Economy with a Flexible Exchange Rate