Day: June 9, 2022

In an open economy with a flexible exchange rate, the rate of interest is increased.

Other things being equal, what will be the effect of this increase?

Select ONE answer:

1. There will be a capital outflow.
2. The exchange rate will appreciate.
3. Inflation will rise.
4. Imports will become more expensive.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Economics KS4 and KS5 classes.

The answer is 2

1. Not correct
2. Correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.