In a large open economy, the real interest rate is determined by:
A) national saving, the domestic investment function, and the net capital outflow function.
B) national saving, the domestic investment function, and the net exports function.
C) the domestic investment function, the net capital outflow function, and the net exports function.
D) national saving, the domestic investment function, the net capital outflow function, and the net exports function.

Question

Quizplus · Accepted Answer

In a large open economy, the real interest rate is determined by three main factors: national saving, the domestic investment function, and the net capital outflow function. National saving affects the supply of loanable funds, the domestic investment function affects the demand for loanable funds, and the net capital outflow function represents the international flow of funds, which also impacts the equilibrium real interest rate.

In a Large Open Economy, the Real Interest Rate Is