Question:
In the case of a small open economy with fixed exchange rate regime and imperfect capital mobility, which of the following is/are CORRECT?
In the case of a small open economy with fixed exchange rate regime and imperfect capital mobility, which of the following is/are CORRECT?
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Updated On: Oct 1, 2024
- Fiscal contraction will lead to Balance of Payment deficit in the short-run if the slope of LM curve is greater than the slope of Balance of Payment curve
- Fiscal contraction will lead to Balance of Payment deficit in the short-run if the slope of LM curve is less than the slope of Balance of Payment curve
- Monetary expansion leads to Balance of Payment surplus in the short-run irrespective of the slopes of the LM curve and the Balance of Payment curve
- Monetary expansion leads to Balance of Payment deficit in the short-run irrespective of the slopes of the LM curve and the Balance of Payment curve
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The Correct Option is A, D
Solution and Explanation
The correct Options are A and D : Fiscal contraction will lead to Balance of Payment deficit in the short-run if the slope of LM curve is greater than the slope of Balance of Payment curve AND Monetary expansion leads to Balance of Payment deficit in the short-run irrespective of the slopes of the LM curve and the Balance of Payment curve
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