Suppose that you countrymen decide to increase their saving. If the elasticity of net capital outflow...

Suppose that you countrymen decide to increase their saving.

If the elasticity of net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect in domestic investment?

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Expert Solution

ANSWER: When the people in United States increase their saving; and assuming a high elasticity of net capital outflow in regard to the real rate of interest will cause a lower real interest rate because there is an inverse relation among the real rate of interest and net capital outflow. A rise in private saving will cause a rise in net capital outflow to a great extent; thus the country will have a negligible impact domestic investment and not increase much

Rahul Sunny answered 1 year ago

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