In a Short-Run Model of a Large Open Economy with a Floating

question 15

Multiple Choice

In a short-run model of a large open economy with a floating exchange rate, net capital outflow ______ as the domestic interest rate increases and is just equal to ______.

• A) decreases; the increase in net exports.
• B) decreases; the decrease in net exports.
• C) increases; the increase in net exports.
• D) increases; the decrease in net exports.

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Definitions:

Explicit Costs

Directly incurred expenses in the operation of a business, such as wages, rent, and material costs, which are clearly accounted for and easy to identify.

Opportunity Costs

The potential benefits missed out on when choosing one alternative over another.

Explicit Costs

Direct, out-of-pocket payments for goods or services that are made by a business as part of its operations.

Total Economic Costs

The sum of all costs associated with the production of a good or service, including both explicit (direct) costs and implicit (indirect or opportunity) costs.