In a small open economy, if the introduction of automatic-teller machines reduces the demand for money, then net exports:
A) fall and the real exchange rate falls.
B) fall but the real exchange rate remains unchanged.
C) remain unchanged but the real exchange rate falls.
D) and the real exchange rate remain unchanged.

Question

Quizplus · Accepted Answer

In a small open economy, a reduction in money demand does not affect net exports or the real exchange rate because these are determined by factors like foreign demand and supply, not domestic money demand.

In a Small Open Economy, If the Introduction of Automatic-Teller