Assume Exchange Rates Are Flexible

question 133

Multiple Choice

Assume exchange rates are flexible.When the quality of one country's products is improving more rapidly than the quality of the products produced in the rest of the world,there will be a tendency,ceteris paribus,for

• A)short term capital to flow out of the country.
• B)the country's interest rates to rise relative to the rest of the world.
• C)that country's currency to appreciate.
• D)that country's currency to depreciate.
• E)the country's inflation rate to rise relative to the rest of the world.

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Definitions:

Sources

The origins or locations from which something is obtained.

Effective Rate

The actual interest rate that a borrower pays on a loan or receives on an investment, taking into account the compounding of interest.

Interest

Interest is the cost of using someone else's money or the return on invested capital, typically expressed as an annual percentage rate.

Lenders

Individuals or institutions that provide funds to borrowers under the condition of receiving back the principal amount plus interest.