Chapter 8R, Problem 7MCQ

To determine

To find:

Factor that will be true if international interest rate is 8%.

Answer to Problem 7MCQ

Option C is correct.

Explanation of Solution

Option C is correct as country N will experience a capital outflow of $250.

Option A is incorrect as there will be inflow of capital due to increase in interest rate.

Option B is incorrect as there will inflow of capital, not the outflow.

Option D is incorrect as when interest rate to rise by 8%, the outflow will be $250.

Option E is incorrect as international equilibrium quantity of loanable funds will not be $1200 at 8% interest rate.

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.