When capital mobility is perfect interest rate differentials will tend to be offset by ?
Correct answer: D. expected exchange rate changes
- A. Price difference
- B. balance of payments difference
- C. current account differences
- D. expected exchange rate changes
Explanation
With perfect capital mobility, investors move funds to eliminate interest-rate advantages. The remaining offset is an expected exchange-rate change, which can make a higher-interest currency no more attractive overall.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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