A Large Country Imposes Capital Controls That Prohibit Foreign Borrowing

question 2

Multiple Choice

A large country imposes capital controls that prohibit foreign borrowing and lending by domestic residents.The country is currently running a financial account surplus.The imposition of the capital controls will cause

• A)net exports to decrease.
• B)real domestic interest rates to rise.
• C)real world interest rates to rise.
• D)desired national saving to fall.

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Definitions:

Negotiability

The quality of a financial instrument that allows it to be transferred or assigned from one party to another in exchange for value.

Sum Certain In Money

A specified, fixed, or exact amount of money that is owed or due to be paid under a contract or agreement.

Enforceable Contract

a valid agreement between parties that can be legally upheld and compelled in a court of law.

Payment

The transfer of money or goods from one party to another as a fulfillment of a transaction or obligation.