In a Short-Run Model of a Large Open Economy with a Floating

Multiple Choice

In a short-run model of a large open economy with a floating exchange rate:

A) net exports determine the exchange rate, which in turn determines net capital outflow.
B) net exports determine net capital outflow, which determines the interest rate.
C) the interest rate is determined in the IS-LM framework, and this value determines net capital outflow; then the exchange rate adjusts to make net exports equal net capital outflow.
D) the interest rate determines investment and net capital outflow, which are equal within the IS-LM framework; the exchange rate then determines net exports.