In an open economy, an increase in national saving _______ the equilibrium domestic real interest rate and the quantity of net capital inflows _____ and the quantity of domestic investment ______.
A)increases; increases; increases
B)increases; increases; decreases
C)increases; decreases; decreases
D)decreases; decreases; increases

Question

Quizplus · Accepted Answer

In an open economy, an increase in national saving leads to a decrease in the equilibrium domestic real interest rate because more funds are available for lending. This decrease in the interest rate makes domestic investment more attractive (since it's cheaper to borrow money), leading to an increase in the quantity of domestic investment. Additionally, with more savings and thus less need to borrow from abroad, the quantity of net capital inflows decreases.

In an Open Economy, an Increase in National Saving _______