A positive real shock in the big country will lead to a
depreciation of the small country's real exchange rate
1. only when the nominal exchange rate is
flexible.
2. regardless of whether the nominal exchange rate
is fixed or flexible.
3. only when the nominal exchange rate is flexible
and the small country's nominal money supply is held constant.
4. only when the nominal exchange rate is
flexible and the small country's real money supply is held constant..
Choose the correct option