Suppose That a U

question 265

Multiple Choice

Suppose that a U.S. firm converts dollars into pounds in order to invest in a British enterprise in the U.K. A year later, the return on the investment is 12 percent in terms of pounds. If, during that period, the dollar appreciated against the pound, then the return on the investment in dollar terms would be

• A)greater than 12 percent.
• B)less than 12 percent.
• C)also 12 percent.
• D)dependent on the inflation rate, not the exchange rate.

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Definitions:

Functional Finance

A theory that government budgetary policy should primarily focus on ensuring economic stability and stimulating demand to achieve full employment, rather than solely aiming to balance budgets.

National Debt

The total amount of money that a country's government has borrowed by various means.

Crowding Out

The displacement of interest-sensitive private investment that occurs when higher government deficits drive up market interest rates.

Expansionary Gap

An Expansionary Gap exists when an economy’s output exceeds its potential output, often leading to inflationary pressures.