The Domestic Real Interest Rate (R)for a Given Country Must

question 71

Multiple Choice

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (rw) ________.

• A)if perfect capital mobility is assumed
• B)because with no barriers to capital flows,if rw > r domestic residents would just borrow abroad putting upward pressures on the domestic rate until both rates equal each other
• C)because with no barriers to capital flows,if rw < r domestic residents would only lend to foreigners putting downward pressures on the domestic rate until both rates equal each other
• D)all of the above
• E)none of the above

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