Econia and Macroland Are Each Other's Main Trading Partner

question 114

Multiple Choice

Econia and Macroland are each other's main trading partner. Which of the following correctly identifies an event that would cause Econia's aggregate demand to rise and Macroland's aggregate demand to fall?

• A) Inflation is higher in Econia than Macroland.
• B) Inflation is lower in Econia than Macroland.
• C) Econia's currency appreciates in value compared to Macroland's currency.
• D) Econia's currency depreciates in value compared to Macroland's currency.

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Definitions:

Subsidiary

A company that is controlled by another company, typically referred to as the parent company.

White Knight

When a firm is an acquisition target by an unattractive suitor, a more desirable acquirer is known as a white knight. (The original suitor may be known for particularly ruthless treatment of acquired companies.)

Tender Offers

A public proposal by a person or company inviting shareholders to sell their shares at a specified price.

Greenmail

To avoid an unfriendly acquisition, a firm may buy shares owned by a potential acquirer at a price above the market price of the stock. The above-market payment is greenmail.