In an open economy,an increase in net exports because of increased demand for domestic products by foreigners should cause the domestic real interest rate to ________ and should cause desired saving minus desired investment to ________.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall

Question

Quizplus · Accepted Answer

In an open economy, an increase in net exports due to higher foreign demand for domestic products leads to an increase in the domestic real interest rate because it boosts the demand for domestic currency, making it more expensive to borrow. This increase in the real interest rate also leads to an increase in desired saving minus desired investment, as higher interest rates encourage more saving and less investment.

In an Open Economy,an Increase in Net Exports Because of Increased