In an open economy with a given level of real interest rates and risk, an increase 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

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

In an Open Economy with a Given Level of Real