Chapter 8R, Problem 5MCQ

To determine

To find:

Outcome of the graph.

Answer to Problem 5MCQ

Option C is correct.

Explanation of Solution

Option C is correct

Capital will flow into country N. As the interest rate is more in country N, so there will be more capital inflow into country N.

Option A is incorrect as the interest rate in country N is already high.

Option B is incorrect as the interest rate in country S is low, so there will be no further fall.

Option D is incorrect as capital will not flow into country S as there is less interest.

Option E cannot be determined as information is incomplete.

Economics Concept Introduction

Financial account is a component of balance of payments that records transactions of assets and liabilities to nonresidents concerning financial assets.

Current account is also a component of balance of payments that records transactions of goods and services with home country and rest of the world.