In the open-economy ISLM model,net export is specified as a function of and exchange arte is specified as a function of .
A)output;output.
B)money supply;interest rate.
C)exchange rate;interest rate.
D)exchange rate;money demand.

Question

Quizplus · Accepted Answer

In the open economy ISLM model, net exports are a function of the exchange rate, as a higher exchange rate can make exports more expensive and less competitive in the global market, reducing net exports. Meanwhile, the exchange rate is also a function of the interest rate, as higher interest rates can attract more foreign investors and increase the demand for the currency, leading to an appreciation of the exchange rate. Therefore, the exchange rate is specified as a function of the interest rate.

In the Open-Economy ISLM Model,net Export Is Specified as a Function