If decreased government borrowing drives down real interest rates in the United States,
A) private investment will tend to decline.
B) the dollar will depreciate leading to an increase in net exports.
C) an inflow of capital will cause the dollar to depreciate.
D) All of the above are true.

Question

Quizplus · Accepted Answer

According to the interest rate parity condition, a decrease in real interest rates in the United States would lead to a depreciation of the dollar, making U.S. goods and services more competitive, and leading to an increase in net exports. However, decreased government borrowing does not have a direct effect on private investment or capital inflows, so options A and C are not true.

If Decreased Government Borrowing Drives Down Real Interest Rates in the United