The BP Schedule Will Be Steeper the

question 15

Multiple Choice

The BP schedule will be steeper the

• A)more responsive capital flows are to the interest rate.
• B)less responsive capital flows are to the interest rate.
• C)smaller the marginal propensity to import.
• D)less likely an expansionary fiscal policy will lead to a balance of payments deficit.

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Definitions:

Bonds

Financial instruments issued by governments or corporations to raise funds, representing a loan made by the investor to the issuer.

Money Supply

The combined economic financial resources at a given time in an economy.

Interest Rate

The part of a loan that is added as interest for the borrower, normally expressed as an annual percentage of the existing loan balance.

Reserve Ratio

The reserve ratio is the fraction of total deposits that a bank is required to hold in reserve and not loan out, acting as a regulatory tool to ensure the stability of the banking system.