If International Capital Flows Are Not Very Responsive to Interest

question 38

Multiple Choice

If international capital flows are not very responsive to interest rates, the initial impact of expansionary fiscal policy will:

• A)result in a significant deterioration in the financial account.
• B)result in a deficit in the overall balance of payments.
• C)be totally ineffective.
• D)lead to a current account surplus.

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Definitions:

Elasticity of Resource Demand

A measure of how much the quantity demanded of a resource changes in response to a change in its price.

Resource Quantity Demanded

Refers to the total quantity of a resource that buyers are willing and able to purchase at a given price over a specific period.

Total Costs

The sum of fixed and variable expenses incurred by a business in the production of goods or services.

Labor Costs

The total sum of all financial compensations and benefits given to employees in exchange for their work, including wages, salaries, and additional perks.