Suppose, in the Basic Mundell-Fleming Diagram That Plots the Internal

question 12

Multiple Choice

Suppose, in the basic Mundell-Fleming diagram that plots the internal balance (IB) and external balance (EB) schedules against the interest rate (i) and government spending minus taxes (G - T) , that the economy is located at a point that is above (or to the left) of the IB schedule and also above (or to the left) of the EB schedule. In this situation the economy is experiencing

• A) unacceptably high unemployment and a balance-of-payments deficit.
• B) unacceptably high unemployment and a balance-of-payments surplus.
• C) unacceptably rapid inflation and a balance-of-payments deficit.
• D) unacceptably rapid inflation and a balance-of-payments surplus.

---

Definitions:

After-Tax Lease Payment

The lease payment amount minus any tax savings resulting from deductible lease expenses.

Tax Rate

The rate at which a person or business is taxed on their earnings or profits.

Borrowed Funds

Money that is borrowed from banks or other lenders that must be repaid, often with interest, according to agreed upon terms.

CCA

Canadian Controlled Private Corporation, regarding taxation in Canada, or can refer to Capital Cost Allowance, which is a tax deduction in Canada that represents depreciation for tax purposes.