If the government of Colombia implemented a policy that reduced national saving, which of the following best predicts the consequences?
A)Its real exchange rate would depreciate, and Colombian net exports would rise.
B)Its real exchange rate would depreciate, and Colombian net exports would fall.
C)Its real exchange rate would appreciate, and Colombian net exports would rise.
D)Its real exchange rate would appreciate, and Colombian net exports would fall.

Question

Quizplus · Accepted Answer

A reduction in national saving would lead to a decrease in the supply of loanable funds, causing interest rates to rise. Higher interest rates attract foreign capital, leading to an appreciation of the real exchange rate. An appreciated currency makes exports more expensive and imports cheaper, resulting in a fall in net exports.

If the Government of Colombia Implemented a Policy That Reduced