In a small open economy with a fixed exchange rate, if the government increasesgovernment purchases, then, in the process of adjusting to the new short-runequilibrium, the money supply:
A) increases to keep the exchange rate unchanged, thus augmenting the effect ofgovernment spending on income
.B) decreases to keep the exchange rate unchanged, thus offsetting the effect ofgovernment spending on income.
C) remains unchanged, and there is no effect of government spending on income.
D) remains unchanged to keep the interest rate at the world interest, so thatgovernment spending reduces income.
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