In a large open economy, the interest rate adjusts so that domestic saving equals:
A) domestic investment.
B) net exports.
C) net capital outflow.
D) domestic investment plus net capital outflow.

Question

Quizplus · Accepted Answer

In a large open economy, the interest rate adjusts to equate domestic saving with the sum of domestic investment and net capital outflow. This is because domestic saving can either be used for domestic investment or lent abroad (net capital outflow).

In a Large Open Economy, the Interest Rate Adjusts So