A Small Open Economy with Perfect Capital Mobility Is Characterized

question 3

Multiple Choice

A small open economy with perfect capital mobility is characterized by all of the following except that:

• A) its domestic interest rate always exceeds the world interest rate.
• B) it engages in international trade.
• C) its net capital outflows always equal the trade balance.
• D) its government does not impede international borrowing or lending.

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Definitions:

Zero Percent Interest

Zero Percent Interest describes a financing or credit offer where no interest is charged on the principal amount for a specific period, typically used as a promotional strategy.

House Money Effect

The tendency of individuals to take higher risks when dealing with profits from previous bets or investments, as if playing with "house money."

Lottery

A form of gambling that involves drawing numbers at random for a prize, with varying rules and structures depending on the type.

Business Venture

An entrepreneurial enterprise or new business that is undertaken with the expectation and plan of achieving financial gains.