Which of the following is the most likely response to an increase in the U.S.real interest rate?
A)a London bank purchases a U.S.bond instead of a Japanese bond it had considered purchasing
B)U.S.firms decide to buy more capital goods
C)a U.S.citizen decides to put less money in his savings account than he had planned.
D)All of the above are consistent.

Question

Quizplus · Accepted Answer

When the U.S. real interest rate increases, it becomes more attractive for foreign investors to purchase U.S. bonds, which offer a higher return. Therefore, a London bank may decide to purchase a U.S. bond instead of a Japanese bond it had considered purchasing.

Answer: B
 When the U.S. real interest rate increases, it becomes more expensive for firms to borrow money, which may lead them to invest more in capital goods to offset the higher cost of borrowing.

Answer: C
 When the U.S. real interest rate increases, it becomes more attractive to save money in U.S. accounts, which offer a higher return. Therefore, a U.S. citizen may decide to put more money in their savings account than they had planned. This answer is incorrect because the response should be "put more" instead of "put less" money in the savings account.

Therefore, the correct answer is:
Answer: A and B
 When the U.S. real interest rate increases, it becomes more attractive for foreign investors to purchase U.S. bonds, and firms may invest more in capital goods to offset the higher cost of borrowing.

Which of the Following Is the Most Likely Response to an Increase