Question

Holding other things constant, an increase in a nation's interest rate reduces... a. national saving and domestic investment. b. national saving and the net capital outflow. c. domestic investment and the net capital outflow. d. national saving only.

          Holding other things constant, an increase in a nation's interest rate reduces...

a. national saving and domestic investment.
b. national saving and the net capital outflow.
c. domestic investment and the net capital outflow.
d. national saving only.
        
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Added by Hyungyu L.

Principles of Economics
Principles of Economics
Gregory Mankiw 8th Edition
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Holding other things constant, an increase in a nation's interest rate reduces... a. national saving and domestic investment. b. national saving and the net capital outflow. c. domestic investment and the net capital outflow. d. national saving only.
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00:01 Holding other things constant an increase in the nation's interest rate reduces a national saving and domestic investment be national saving and net capital outflow c domestic investment and net capital outflow or d national savings only so this particular one what's important to know is a higher interest rate? makes borrowing to finance capital projects more costly so it makes borrowing more costly thus it discourages domestic investment it also makes the nation's domestic bond and other interest yielding assets more attractive which discourages investments abroad? this then encourages foreigners to buy more of the nation's assets as well thus decreasing our net capital outflow so the answer here is going to be c...
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