If the world interest rate falls, then, holding other factors constant, in a small open economy...

If the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will _________ and net exports will ______________

Expert Solution

If the interest rates were to fall the investors would increase their investment spending. If the incomes of foreigners were to rise, enabling them to demand more domestic‐made goods, net exports would increase.

Thus the answer to the question above is:

If the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will increase and net exports will increase

Rahul Sunny answered 2 years ago

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