Author Question: Suppose that a small economy that had previously been closed becomes open. If its real interest rate ... (Read 54 times)

cnetterville · **on:** Jun 30, 2018

Suppose that a small economy that had previously been closed becomes open. If its real interest rate had previously been below the world real interest rate, we would expect that

A) the country's real interest rate would remain below the world level.
B) the country would become a net lender abroad.
C) the country would become a new borrower abroad.
D) the amount of loanable funds supplied in the country would decline.

Question 2

Under a fixed exchange rate system, a real interest rate corresponding to the upward-sloping portion of the NCF curve reflects the fact that a central bank ________, and the real interest rate corresponding to the horizontal portion of the NCF curve

reflects the fact that a central bank ________. A) can always supply more domestic currency; can always meet the demand for foreign currency
B) can always supply more domestic currency; is limited in meeting the demand for foreign currency
C) is limited in meeting the demand for domestic currency; can always meet the demand for foreign currency
D) is limited in meeting the demand for domestic currency; is limited in meeting the demand for foreign currency