Question: Select the correct answer: Consider a small open economy with fixed prices and perfect capital mobility and suppose that the world output level rises. [

Select the correct answer: Consider a small open economy with fixed prices and perfect capital mobility and suppose that the world output level rises. [2 Marks](a) What is the effect on the level and composition of output under fixed exchange rates? (b) Under flexible exchange rates? (a) How would your answers to (a) and (b) change if you assumed imperfect capital mobility?

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