In the Following Diagram, with Fixed Exchange Rates

question 15

Multiple Choice

In the following diagram, with fixed exchange rates,

The economy is in domestic equilibrium at income level __________ and there is__________.

• A) Y₁; a balance-of-payments surplus
• B) Y₂; a balance-of-payments deficit
• C) Y₂; a balance-of-payments surplus
• D) Y₃; equilibrium in the balance of payments

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Definitions:

Annual Depreciation

The allocation of the cost of an asset over its useful life, recognized each year.

Scrap Now

The action of disposing of materials or products that are no longer useful or sellable immediately.

Discount Rate

The interest rate used to discount future cash flows to present value, often used in the context of the time value of money.

Net Present Value

A method of evaluating an investment's profitability by computing the difference between the present value of cash inflows and outflows over a period of time.