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Consider a small open economy where the world interest rate is above the domestic equilibrium interest rate
Consider a small open economy where the world interest rate is above the domestic equilibrium interest rate. Which of the following must be true?
Group of answer choices
There is not enough information to know about the country's imports and exports.
The country's exports equal its imports.
The country imports more than it exports.
The country exports more than it imports.
Expert Solution
If the world interest rate is above the domestic equilibrium interest rate then local currency will depreciate in the market and that will increase the exports and decrease the imports in the market, the answer is "D", exports are more than imports.
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