If a Country Has a Flexible Exchange Rate System and a Deficit

question 6

Multiple Choice

If a country has a flexible exchange rate system and a deficit on capital account

• A) the balance of payments must be negative.
• B) The balance of payments must be positive.
• C) The balance on current account must be positive.
• D) The balance on current account must be negative.

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Definitions:

Fixed Incomes

Fixed incomes refer to types of investment that pay regular interest or dividends to investors and have the principal amount returned at maturity.

Nominal Interest Rate

The interest rate before adjustments for inflation, representing the face value of borrowing costs or investment returns.

Relative Prices

The price of a good or service compared to the price of another, indicating the trade-off between choosing one over the other.

Demand for Loanable Funds

The desire for borrowing money that exists among individuals, businesses, and governments in an economy, usually influenced by interest rates.