1. Holding other things constant, an increase in a nation’s interest rate reduces

A. national saving and domestic investment.

B. national saving and the net capital outflow.

C. domestic investment and the net capital outflow.

D. national saving only.

2. Holding other things constant, an appreciation of a nation’s currency causes

A. exports to rise and imports to fall.

B. exports to fall and imports to rise.

C. both exports and imports to rise.

D. both exports and imports to fall.

3. The government in an open economy cuts spending to reduce the budget deficit. As a result, the interest rate ________, leading to a capital ________ and a real exchange rate ________.

A. falls, outflow, appreciation

B. falls, outflow, depreciation

C. falls, inflow, appreciation

D. rises, inflow, appreciation