What alternative to restrictions on capital inflows do some economists recommend to minimize the possibility of increased lending booms and risk taking by domestic banks?
What will be an ideal response?
Some economists point out that this problem could be made less severe by improving bank regulation and supervision in emerging-market countries. In this way, capital inflows could still serve as important financial mechanisms for channeling foreign investment to countries with promising investment opportunities.
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You have just read that Australia has suffered a drought, destroying its wheat crop for this year. The effect of this adverse supply shock on Australia would probably be
A) an increase in prices and an increase in real interest rates. B) an increase in prices, an increase in nominal interest rates, but a decrease in real interest rates. C) a decrease in prices and a decrease in real interest rates. D) a decrease in prices, a decrease in nominal interest rates, but an increase in real interest rates.
The Economic Recovery Tax Act of 1981 cut corporate taxes in a way that was designed to
A. encourage firms to use fewer nonrenewable resources. B. encourage firms to hire more workers. C. stimulate capital investment. D. reduce corporate profits.