Consider two countries,the United States and Mexico.Both countries are identical,except that Mexican firms are less responsive to interest changes than U.S.firms.If the interest rate in each country were to rise by 2 percent,the Mexican economy would move further into recession than the U.S.economy.

Question

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If Mexican firms are less responsive to interest rate changes, the impact of a 2 percent increase in interest rates would be less severe on the Mexican economy compared to the U.S. economy, where firms are more responsive.

Consider Two Countries,the United States and Mexico