A shift in demand toward the foreign country's goods would ________ the domestic real interest rate and ________ net desired saving (desired saving less desired investment)in the economy.

Question

Quizplus · Accepted Answer

A shift in demand towards a foreign country's goods would lead to a decrease in demand for domestically produced goods. This would lead to a fall in the overall demand and output, causing a decrease in the real interest rate. In turn, this would cause a decrease in net desired savings as well, as the lower interest rate would reduce the amount of savings desired by households and firms. Therefore, option B, i.e., lower; decrease, is the correct answer.

A Shift in Demand Toward the Foreign Country's Goods Would