Consider a small economy that does not permit international borrowing or lending. The country's autarky real interest rate is less than the world real interest rate. Now suppose the economy removed capital controls. Which of the following is TRUE? There is an excess supply of capital in the domestic economy and capital flows in O There is an excess demand for capital in the domestic economy and capital flows out. O There is an excess supply of capital in the domestic economy and capital flows out O There is an excess demand for capital in the domestic economy and capital flows in

Consider a small economy that does not permit international borrowing or lending. The country's autarky real interest rate is less than the world real interest rate. Now suppose the economy removed capital controls. Which of the following is TRUE? There is an excess supply of capital in the domestic economy and capital flows in O There is an excess demand for capital in the domestic economy and capital flows out. O There is an excess supply of capital in the domestic economy and capital flows out O There is an excess demand for capital in the domestic economy and capital flows in

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter14: A Macroeconomic Theory Of The Open Economy

Section: Chapter Questions

Problem 1CQQ

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Consider a small open economy that takes the world real interest rate as given. Suppose that initially the world real interest rate is less than the country’s autarky real interest rate. Now suppose there is a change in tax policy that leads to an increase in domestic investment demand. Which of the following is TRUE? a. The economy may flip from importing capital to exporting capital b. There is an increase in the quantity of domestic saving c. There is an increase in the real interest rate paid by domestic investors d. None of the other options
Consider a small open economy that takes the world real interest rate as given. Suppose that initially the world real interest rate is less than the country’s autarky real interest rate. Now suppose there is a change in tax policy that leads to an increase in domestic saving supply. Which of the following is TRUE? a. The economy may flip from importing capital to exporting capital b. There is an increase in the quantity of domestic investment c. There is an increase in the real interest rate paid to domestic savers d. None of the other options
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