In a two-country world,an increase in the real interest rate in the domestic economy (relative to the real interest rate in the foreign economy)shifts

Question

Quizplus · Accepted Answer

An increase in the real interest rate in the domestic economy (relative to the real interest rate in the foreign economy) shifts the domestic AD curve leftward because it makes borrowing more expensive, which reduces investment and consumption. It also shifts the domestic SRAS curve rightward because it makes it more attractive for firms to invest in the domestic economy, which increases output.

In a Two-Country World,an Increase in the Real Interest Rate