A Small Open Economy Has a Current Account Balance of Zero.A

question 39

Multiple Choice

A small open economy has a current account balance of zero.A rise in the world real interest rate causes

• A)a current account surplus.
• B)a capital account surplus.
• C)net borrowing from abroad.
• D)absorption to exceed income.

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Definitions:

Incremental Cost Approach

A decision-making process that focuses on the costs that will change if an action is taken, compared to if it is not taken.

Discount Rate

The interest rate used to discount future cash flows to their present value in capital budgeting projects.

Salvage Value

The projected amount an asset is expected to yield upon being sold at the conclusion of its usable lifespan.

Overhaul Costs

Expenses associated with major repairs or the restoration of equipment to ensure it operates efficiently.