In a Small Open Economy with Perfect Capital Mobility, If

question 9

Multiple Choice

In a small open economy with perfect capital mobility, if the domestic interest rate were to rise above the world interest rate, then ______ would drive the domestic interest rate back to the level of the world interest rate.

• A) capital inflow
• B) capital outflow
• C) the central bank
• D) a decline in domestic saving

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Definitions:

Intended Beneficiary

A third party for whom a contract is created to benefit, giving them certain rights to enforce the contract.

Contract

A legally enforceable agreement between two or more parties that creates mutual obligations enforceable by law.

Rights

Entitlements or permissions granted to individuals or groups by legal systems, societal norms, or moral principles, often protected by law.

Vest

To mature, as in the maturation of rights that allow a party to act legally on the rights.