If the Foreign Exchange Market Is in Equilibrium and Attractive

question 28

Multiple Choice

If the foreign exchange market is in equilibrium and attractive domestic investment opportunities result in a net inflow of capital,

• A) the nation will experience a trade deficit.
• B) the nation will experience a trade surplus.
• C) interest rates will rise in the loanable funds market.
• D) the actual rate of unemployment must exceed the natural rate of unemployment.

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Definitions:

Value Added

The increase in worth of a product or service as a result of a particular process, often characterized by the difference between the price of the finished product and the cost of the inputs involved in making it.

Raw Materials

Basic materials extracted from natural resources or produced through agriculture, which are used in the production of goods and services.

Injection

Any spending other than by households or any income other than from resource earnings; includes investment, government purchases, exports, and transfer payments.

Circular Flow

An economic model that illustrates the continuous movement of goods, services, and money between producers and consumers in an economy.