Question

An increase in real interest rates in the United States a encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets. b discourages both U.S. and foreign residents from buying U.S. assets. c encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets. d encourages both U.S. and foreign residents to buy U.S. assets.

Answer 1

d. encourages both U.S. and foreign residents to buy U.S. assets.

Step-by-step explanation:

The interest rate in a country has influence on the capital of it.

When the real interest rates in the United States increase, the U.S. assets have higher value so that become attractive to funds. Thus, it encourages both foreign and U.S. residents to buy U.S. assets.

Besides, when the real interest rate in the U.S. increases, it encourages the U.S residents to save more U.S. assets and discourage them from purchasing foreign assets

=> The net capital inflow in U.S would increase