The main difference between the small open economy and the large open economy is that
A)the former faces a fixed international real interest rate,but the latter can influence it.
B)the former can influence the international real interest rate,but the latter cannot.
C)the former cannot maintain a large current account deficit,but the latter can.
D)the former can maintain a large current account deficit,but the latter cannot.

Question

Quizplus · Accepted Answer

In a small open economy, the country is too small to affect the world interest rate and therefore faces a fixed international real interest rate. In a large open economy, however, the country's actions can influence the international real interest rate. Therefore, option A is the correct answer. The other choices are not differentiated by the size of the economy.

The Main Difference Between the Small Open Economy and the Large