A small open economy increases its investment demand.This causes the world real interest rate to ________ and the country's current account balance to ________.
A)rise; fall
B)remain unchanged; rise
C)rise; rise
D)remain unchanged; fall

Question

Quizplus · Accepted Answer

In a small open economy, the world real interest rate is determined by global markets and remains unchanged. An increase in investment demand leads to higher capital inflows, reducing the current account balance.

A Small Open Economy Increases Its Investment Demand