A small country is a net foreign borrower if its real interest rate without foreign borrowing is
The world real interest rate.

Question

Quizplus · Accepted Answer

If the small country's real interest rate without foreign borrowing is lower than the world real interest rate, then it would not need to borrow from foreigners as it is already able to get financing at a lower cost domestically. On the other hand, if the small country's real interest rate without foreign borrowing is higher than the world real interest rate, then it would need to borrow from foreigners in order to access cheaper financing. Therefore, a small country is a net foreign borrower if its real interest rate without foreign borrowing is higher than the world real interest rate.

A Small Country Is a Net Foreign Borrower If Its