Suppose Investment Grew Increasingly Sensitive to Changes in the Domestic

question 51

Multiple Choice

Suppose investment grew increasingly sensitive to changes in the domestic interest rate. In that case, you would expect to see

• A) the exchange rate become more sensitive to changes in monetary policy.
• B) the exchange rate become less sensitive to changes in monetary policy.
• C) no change in the sensitivity of the exchange rate to changes in monetary policy.
• D) foreign investment take up the slack and neutralize the structural changes in domestic investment behavior.
• E) none of the above.

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Definitions:

Positive Economic Profits

Earnings that exceed the total opportunity costs of all inputs, indicating a return above the normal profit level.

Expand

To increase in size, number, or importance, often relating to businesses aiming to grow through increased operations, product lines, or market reach.

Equilibrium

The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.

Incentive

A factor, often financial, that motivates individuals or organizations to perform certain actions or behave in a desired way.