Question

Investment is ________ related to the interest rate, while net capital outflow (NCO) is ________ related to the interest rate.

	positively; negatively
	positively; positively
	negatively; negatively
	negatively; positively

Using the information in the table shown, what is the inflation rate in 2014?

Year	CPI
2012	121.7
2013	122.8
2014	125.2
2015	126.6
2016	128.4

	- 1 %
	None of the above
	It cannot be calculated without knowing the base year.
	0.9 %

As new goods and services become available:

	the basket of goods used to calculate the CPI never changes to reflect them.
	Statistics Canada will occasionally update the basket used to calculate the CPI to account both for substitution between goods and services and new products.
	the basket of goods used to calculate the CPI doesn't change until 75 percent of urban consumers use new goods.
	the basket of goods used to calculate the CPI immediately changes to reflect them.

Many governments actively work to:

	attract foreign direct investment, so that when foreign companies invest in local firms, they can transfer human capital to local managers.
	attract foreign direct investment, hoping that it will build up their capital stock when domestic savings aren't sufficient.
	discourage foreign direct investment, in an effort to encourage locals to invest in their own economy.
	discourage foreign direct investment, in an effort to avoid "crowding out."

Answer 1

1. Option 'c' i.e. "negatively;negatively" is correct. Rate of interest is the cost of investment. When interest rate increases, cost of borrowing for investment increases and investment decreases. Similarly, interest rate is the incentive for saving. When interest rate increases, the incentive to save increases and net capital outflow decreases. Hence both investment and net capital outflow are negatively related to interest rate.

2. Inflation rate in 2014 = ((CPI2014-CPI2013)/CPI2013)*100 = (125.2-122.8/122.8)*100 = 1.95%. Hence, option 'b' is correct.

3. Option 'b' is correct. Statistics Canada updates the basket of goods and services peridically with change in weights assigned to them. Weights keep changing over time as people shift there consumption with change in price. Thus substitution effect is taken into consideration.

4. Option 'b' is correct. FDI is important for growth of an economy via capital build up and employment to local population. The increase in physical capital results into sustained growth. This is particularly helpful if domestic saving is not enough for desired investment for acheiving growth.