In the portfolio balance model, other things equal, an increase in home country wealth because of a current account surplus
A) will reduce home country demand for money.
B) will reduce home country demand for foreign bonds.
C) will have an indeterminate effect on the domestic interest rate (without more Information).
D) will not affect the domestic demand for either foreign or domestic bonds.

Question

Quizplus · Accepted Answer

An increase in home country wealth due to a current account surplus affects the demand for money and bonds, but its effect on the domestic interest rate cannot be determined without additional information about how the increased wealth is allocated between domestic and foreign assets, and how it influences overall demand for liquidity.

In the Portfolio Balance Model, Other Things Equal, an Increase