Suppose that in a small open economy with perfect capital mobility and a fixed exchange rate, the domestic currency is valued higher than the official exchange rate. As the economy adjusts to achieve equilibrium, the LM* curve will shift rightward and:increase the equilibrium income.decrease the equilibrium income.leave the equilibrium income unaffected.destabilize the equilibrium income but make it fluctuate in unpredictable ways.

The central bank of a small open economy with perfect capital mobility and a fixed exchange rate can increase equilibrium income by:devaluing the currency.shifting the LM* curve to the left.allowing the currency to float while retaining a fixed exchange rate.revaluing of the currency.

Consider a small open economy that is operating under a floating-exchange-rate regime with perfect capital mobility. In this economy, an increase in government spending would cause the equilibrium income to:decrease and the exchange rate to increase.increase and the exchange rate to decrease.increase and the exchange rate to remain unchanged.remain unchanged and the exchange rate to increase.

Suppose the central bank of a large open economy with a floating exchange rate increases its interest rate. In the new short-run equilibrium, how does the LM* curve shift and what is the impact on the exchange rate and net capital flows?

The intersection of the IS and LM curves determines the equilibrium:money supply and national income.inflation and interest rate.national income and interest rate.national income and inflation.

Consider the open-economy IS-LM model, which of the following changes will result in a shift/tilt of the IP curve?Group of answer choicesA monetary expansion in the home economyA fiscal expansion at home that increased equilibrium output at home.A fiscal contraction in the foreign economy resulting in weaker foreign demandA monetary contraction in the foreign economy