Question

Question 9 (1 point)

Which change would by itself allow for more investment in a country?

Question 9 options:

	A reduction of government salary payments matched with an identical increase of government expenditure on infrastructure in that country
	An increase in domestic bank lending to foreign corporations
	both of the above
	none of the above Question 10 (1 point) Policy changes commonly suggested in response to recent international financial crises include Question 10 options: less rapid financial liberalization. regulation of foreign direct investment. all of the above. none of the above. Question 11 (1 point) What is the after-tax real interest rate if the nominal interest rate is 10%, inflation is 5%, and the tax on interest income is 40%? Question 11 options: -1% 1% 2% 3% Question 12 (1 point) An example of external commercial borrowing is Question 12 options: the government of Peru borrowing at concessional rates from the World Bank. a Mexican corporation issuing bonds on international capital markets. both of the above. none of the above.

Answer 1

Question 9: none of the above

reason: A reduction of government salary payments matched with an identical increase of government expenditure on infrastructure in that country - negates the effect of investment as salaries are cut. The net government spending would be zero. Plus individual investment would reduce as their salary is cut.

An increase in domestic bank lending to foreign corporations - reduces the availability of money within the country, and reduces investment.

Therefore, neither of the options would lead to increase in investment in the country.

Question 10: all of the above

reason: less rapid financial liberalization helps in advancing structral repair in the economy. And regulation of foreign direct investment promotes market stability. Both of these measures help control financial crisis.

Question 11: 1%

reason: the nominal interest rate = 10%, the tax on interest income is 40%, inflation is 5%. Therefore,

after-tax real interest rate = 1%

calculation: formula --- after-tax real interest rate= (after-tax nominal interest rate) - (inflation rate)

Nominal rate = 10; less: tax rate = 10 * 40/100 = 4%

after-tax nominal interest rate = 10 - 4 = 6%

inflation rate = 5%

Therefore after-tax real interest rate = 6 - 5 =1%

Question 12: both of the above.

reason:  External commercial borrowings are commercial loans raised by resident borrower from nn-resident entities. Both World Bank and international capital markets are recognised international lenders of loan. Hence the answer is both of the above.