Suppose the world economy is divided into two halves.In Region A,all economies experience a decrease in desired saving,while desired saving is unchanged in Region B.If there is open trade and perfect capital mobility across the two regions,which of the following is true?
A)Actual investment in Region B has increased.
B)There is a net capital flow from Region B to Region A.
C)Actual investment in Region A has increased.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

With a decrease in desired saving in Region A, interest rates in Region A would rise, attracting capital from Region B, leading to a net capital flow from Region B to Region A.

Suppose the World Economy Is Divided into Two Halves