In an Open Economy

question 63

Multiple Choice

In an open economy:

• A) the exchange rate is determined by the government.
• B) specialization in activities with a comparative advantage is not possible.
• C) trade is beneficial only to the larger economy.
• D) there is trade in goods, services, and/or assets with other countries.

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Definitions:

Nominal Annual Rate

The stated or face interest rate of a financial product, not adjusting for compounding or inflation over time.

Effective Annual Rate

This is the interest rate on an investment or loan that accounts for the effects of compounding over a given period, providing a more accurate picture of financial returns or costs.

Monthly Compounding

The process of calculating interest earnings on the principal and previously earned interest every month.

Nominal Annual Interest Rate

The stated interest rate of a bond or loan, not adjusted for inflation, which indicates the periodic interest payment.