Real domestic interest rates would increase in a large open economy if
A)there were a temporary negative domestic supply shock.
B)the government imposed capital controls and the capital and financial account had been in deficit.
C)foreigners were more willing to save.
D)there were a temporary negative supply shock abroad in a small open economy.

Question

Quizplus · Accepted Answer

A temporary negative domestic supply shock would reduce the supply of goods, leading to higher prices and increased demand for money, which can result in higher real interest rates.

Real Domestic Interest Rates Would Increase in a Large Open