When analyzing the effects of changes in demand in an open economy, we assume that firms:
A) have only one fixed rate of return on various projects when deciding investment activity.
B) have differing returns on various projects when deciding investment activity.
C) are required to borrow only from domestic banks when funding investment activity.
D) consider the effects of inflation on investment activity.

Question

Quizplus · Accepted Answer

Firms in an open economy have access to global financial markets, which means they can borrow funds from both domestic and foreign sources. This leads to varying rates of return on different investment projects, as the cost of borrowing may differ depending on the source of funds.

When Analyzing the Effects of Changes in Demand in an Open