Question
In a small open economy with a floating exchange rate,
the supply of real money balances is fixed and a rise in government spending ______Solution
As G increases, IS 1 shifts to IS 2 . At new equilibrium e', interest rate also increases and i > i*. Here,2 things are happening: a) there will now be capital inflow as a result capital A/c surplus b) Since, AD and Y increased, import demand will increase which will lead to current A/c deficit. Since, the magnitude of Capital A/c surplus will be much higher than the magnitude of current A/c deficit; there is BOP surplus. As a result domestic currency appreciates; dd for rupee has increased. So, there will be capital inflow which will bring back the interest rate to its original level. As a result, exports decrease and Imports increase (imports have become cheaper) [Net exports falls] IS shifts back to initial level and equilibrium in the goods market is restored. 
In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending cannot change the interest rate so that net exports must fall to maintain equilibrium in the goods market.
Statement: X>W=Y>N≤P; W≥Z ;Z ≥P
I. X>Z
II. W≥P
Statements: Y ≤ A = F; H > T; H < V < F; Y ≤ W < R
Conclusions:
I. Y < V
II. T < A
III. W > H
Statements: M % C & G @ T $ D; W % M # P
Conclusions : I. D % C II. M % G ...
Statements: Q $ Z % C # T @ H
Conclusions:
I. Z # H
II. Q © T
III. H % Z
Statements: G ≤ D < F; C > D = E; A ≤ B < C; G > H
Conclusions:
I. C > H
II. F > A
III. E < B
Statement: N < O; M ≥ V; M ≥ R; V > O ≥ U
Conclusion:
I. O > R
II. R > U
Statements: X ≥ W > O = F ≥ B ≥ J; M < A ≤ J
Conclusions:
I. M < B
II. O ≥ A
III. O < A
...Statements: M @ C, C $ X,X # J, J * N Conclusions :
I. N % X
II. J % M
...Statements: U = R < M < Q < P; A > B > E < R < T; I < N = B > U > X
Conclusions:
I. P ≤ U
II. T > A
...Statements: A > B > C; D < E < C; D ≥ F = G
Conclusion:
I. G < E
II. F < A
