Krugman's Economics For The Ap® Course
3rd Edition
ISBN: 9781319113278
Author: David Anderson, Margaret Ray
Publisher: Worth Publishers
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Question
Chapter 41, Problem 6MCQ
To determine
The correct option for the given situation in the graph.
Expert Solution & Answer
Answer to Problem 6MCQ
Option a is correct.
Explanation of Solution
Explanation for the correct option:
a.
In the given figure, the interest rate in the country U is higher than in country B. In the country U, capital inflow will increase as investors would be more attracted to invest in this country due to the higher interest rate. Therefore, option a is correct.
Explanation for incorrect options:
b.
Capital inflow will decrease in country B as its interest rate is only 2%. Therefore, option b is incorrect.
c.
Exports to country B will also reduce as its own products will be less expensive. Therefore, option c is the incorrect answer.
d.
In country U, imports will remain unchanged if interest rates are increased. Therefore, option d is incorrect.
e.
Capital outflow will decrease due to higher interest rate people would prefer investing in their own country. Therefore, option e is incorrect.
Economics Concept Introduction
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
Chapter 41 Solutions
Krugman's Economics For The Ap® Course
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