In an open economy with a given level of real interest rates and risk, a decrease in real interest rates abroad will ________ capital inflows and ________ the equilibrium domestic real interest rate.
A)increase; increase
B)increase; decrease
C)decrease; decrease
D)decrease; increase

Question

Quizplus · Accepted Answer

Decreased interest rates abroad cause foreign investors to turn their attention to domestic investments. This increases capital inflows and thus, decreases the domestic real interest rate.

In an Open Economy with a Given Level of Real