1.Protectionist policies in a small open economy do not alter the trade balance because the:

A)the fall in exports is equal to the fall in imports, leaving the trade balance unchanged.

B)interest rate adjusts to offset any reductions in imports.

C)exchange rate appreciates to offset the increase in net exports.

D)level of net capital flow is fixed by the world interest rate.

E)A and C are correct.

2. In a closed economy model, if consumptiondoes notrespond to changes in interest rate, then a $12 billion rise in government spending would:

A)still crowd out exactly $12 billion of investment.

B)crowd out between zero and $12 billion of investment.

C)not crowd out any investment.

D)crowd out more than $12 billion of investment.