In a Small Open Economy with a Floating Exchange Rate

question 21

Multiple Choice

In a small open economy with a floating exchange rate, a rise in government spending in the new short-run equilibrium:

• A) chokes off investment, but not by as much as the new government spending.
• B) chokes off an amount of investment just equal to the new government spending.
• C) attracts foreign capital, thus raising the exchange rate and reducing net exports, but not by as much as the new government spending.
• D) attracts foreign capital, thus raising the exchange rate and reducing net exports by an amount just equal to the new government spending.

Understand and compute the cost of purchasing shares.

Determine the rate of yield on preferred stock shares.

Calculate the dividend per share for preferred stock based on the declared total dividend and par value.

Assess the impact of market price versus par value on investment decisions.

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Definitions:

No-par Common Stock

A type of common stock that does not have a par value assigned, representing an ownership interest in a corporation.

Stated Value

A value assigned to a share of stock by the corporation’s board of directors, which is an arbitrary value used for accounting purposes.

Par Common Stock

The value assigned to a share of common stock in the company's charter, not indicative of the market value.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often with predetermined dividend payments.