Exhibit: Saving and Investment in a Small Open Economy

question 8

Multiple Choice

Exhibit: Saving and Investment in a Small Open Economy In a small open economy, if the world interest rate is r₃, then the economy has:

• A)a trade surplus.
• B)balanced trade.
• C)a trade deficit.
• D)positive capital outflows.

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Definitions:

Marginal Product

The additional output gained by employing one more unit of a given input.

Resource Maximization

It is the technique or strategy of optimally utilizing resources to achieve the highest possible output or efficiency.

Least-costly Combination

A perfect combination of resources that lowers the production cost while reaching a target output level.

Profits

Financial gains realized when the revenues from business activities exceed the expenses, costs, and taxes needed to sustain the operation.