If people have a sudden increase in confidence in the open economy of the U.S.and want to invest there,the:
A)interest rate increases,as NCO increases.
B)interest rate falls,as NCO falls.
C)interest rate falls,as NCO increases.
D)interest rate increases,as NCO decreases.

Question

Quizplus · Accepted Answer

If people have a sudden increase in confidence in the open economy of the U.S. and want to invest there, the demand for U.S. dollars increases, which leads to an increase in the value of the dollar. As a result, there will be a decrease in net capital outflow (NCO), since U.S. investors will have a stronger incentive to keep their money within the country. This decrease in NCO causes a decrease in the interest rate, as the supply of loanable funds increases. Therefore, choice B is the correct answer.

If People Have a Sudden Increase in Confidence in the Open