What impact will the increase in investment demand have on the real interest rate of the small open economy? Briefly explain your answer. (2 marks)

Question

What impact will the increase in investment demand have on the real interest rate of the small open economy? Briefly explain your answer. (2 marks)
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Solution 1

In a small open economy with perfect capital mobility, the real interest rate is determined by the world interest rate, not by domestic factors. Therefore, even if investment demand increases, it will not affect the real interest rate in the small open economy. The reason is that any additional dema Knowee AI StudyGPT is a powerful AI-powered study tool designed to help you to solve study prob

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