Refer to Political Instability Abroad. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the U.S.?
A)make it rise which by itself would increase U.S. aggregate demand.
B)make it rise which by itself would decrease U.S. aggregate demand.
C)make it fall which by itself would increase U.S. aggregate demand.
D)make it fall which by itself would decrease U.S. aggregate demand.

Question

Quizplus · Accepted Answer

When foreigners buy more U.S. assets, the demand for U.S. dollars increases, leading to a decrease in interest rates. Lower interest rates make borrowing cheaper, encouraging more investment spending, which increases U.S. aggregate demand.