Under a Flexible Exchange Rate System, If a Country Wished

question 42

Multiple Choice

Under a flexible exchange rate system, if a country wished to pursue contractionary policies relative to the rest of the world,

• A)decreases in interest rates would lead to a capital outflow, partially offsetting the desired expansionary effect.
• B)increases in interest rates would lead to a capital inflow, partially offsetting the desired contractionary effect.
• C)decreases in interest rates would lead to a capital inflow, partially offsetting the desired contractionary effect.
• D)increases in interest rates would lead to a capital outflow, partially offsetting the desired expansionary effect.

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Definitions:

Working Capital

The difference between a company's current assets and its current liabilities, indicating the short-term liquidity of the business.

Income Tax Rate

The proportion of earnings handed over to the government as tax.

After-Tax Discount Rate

The discount rate that takes into account the effect of taxes on the net income from an investment.

Straight-Line Depreciation

A tactic for parceling out the expense of a tangible asset through its effective duration in equal yearly quotas.