Which of the following is/are CORRECT in the case of a small open economy with floating exchange rate? (A) Fiscal expansion raises income. (B) Fiscal expansion leaves income at the same level. (C) Capital inflow leads to fall in net exports. (D) Capital inflow leads to increase in net exports. (A) Fiscal expansion raises income. (B) Fiscal expansion leaves income at the same level. (C) Capital inflow leads to fall in net exports. (D) Capital inflow leads to increase in net exports.

IIT JAM 2025 Question 35: Open-economy macroeconomics

Which of the following is/are CORRECT in the case of a small open economy with floating exchange rate?

(A) Fiscal expansion raises income.

(B) Fiscal expansion leaves income at the same level.

(D) Capital inflow leads to increase in net exports.

Select all that apply.

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Open-economy macroeconomics has come up 55 times in 7 exams since 2006.

This question is on Policy under floating exchange rates, part of Open-economy macroeconomics in International Economics.

What monetary and fiscal policy can do when the exchange rate moves freely.

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