Assume a System of Floating Exchange Rates and High Capital

question 51

Multiple Choice

Assume a system of floating exchange rates and high capital mobility.In response to relatively high domestic interest rates, suppose that foreign investors place their funds in domestic capital markets.The result would be

• A) a depreciation of the domestic currency and a rise in net exports.
• B) a depreciation of the domestic currency and a fall in net exports.
• C) an appreciation of the domestic currency and a rise in net exports.
• D) an appreciation of the domestic currency and a fall in net exports.

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Definitions:

Quantity Effect

The impact on total revenue when the quantity sold changes while holding price constant.

Total Revenue

The total amount of money generated from the sale of goods or services before any costs or expenses are deducted.

Price Elasticity

The extent to which the amount of a good that is sought after moves due to a difference in price.

Price Reduction

A decrease in the amount charged for a good or service, often used as a sales strategy to increase demand or respond to excess supply.