In the Monetary Small Open-Economy Model with a Flexible Exchange

Multiple Choice

In the monetary small open-economy model with a flexible exchange rate, an increase in the world real interest rate

A) decreases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
B) increases domestic output and the nominal exchange rate as long as real money demand is much less responsive to real income than the real interest rate.
C) increases domestic output and decreases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
D) increases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.
E) decreases domestic output and increases the nominal exchange rate, as long as real money demand is much more responsive to real income than to the real interest rate.