If a Country Experiences a Tremendous Increase in the Demand

question 39

Multiple Choice

If a country experiences a tremendous increase in the demand for loanable funds as many new infrastructure building projects are initiated, then the interest rate will

• A)rise, there will be a decrease in net capital outflow, and the real exchange rate will fall.
• B)rise, there will be a decrease in net capital outflow, and the real exchange rate will rise.
• C)fall, there will be an increase in net capital outflow, and the real exchange rate will rise.
• D)fall, there will be an increase in net capital outflow, and the real exchange rate will fall.

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Definitions:

Preferred Stock

A type of stock that provides a fixed dividend before any dividends are paid to common stockholders and typically has priority over common stock in the event of bankruptcy.

Supernormal Growth

A period of elevated growth rates above and beyond a company's stable growth phase, often due to unique or exceptional circumstances.

Constant Growth Rate

A steady, unchanging rate at which a company's dividends or earnings are expected to grow over time.

Required Return

Required return is the minimum expected return investors demand as compensation for the risk of investing in a particular security or portfolio.