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    Question

    According to the Mundell-Fleming model for a

    small open economy with flexible exchange rates, if the Federal Reserve cannot alter domestic interest rates, changes in the money supply could still influence aggregate income through changes in the: _____
    A exchange rate. Correct Answer Incorrect Answer
    B price level. Correct Answer Incorrect Answer
    C level of government spending. Correct Answer Incorrect Answer
    D tax rates. Correct Answer Incorrect Answer

    Solution

    According to the Mundell-Fleming model for a small open economy with flexible exchange rates, if the Federal Reserve cannot alter domestic interest rates, changes in the money supply could still influence aggregate income through changes in the exchange rate.

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