Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase

Question

a.

more capital goods but fewer foreign bonds.
b.

more capital goods and more foreign bonds.
c.

more foreign bonds but fewer capital goods.
d.

fewer capital goods and fewer foreign bonds.

Answer 1

If the real interest rate in a country falls, domestic residents will generally find borrowing cheaper and may be more inclined to invest in capital goods, as the cost of financing these investments decreases. Additionally, lower domestic interest rates may make foreign bonds more attractive, as investors seek higher returns elsewhere.

Therefore, the correct answer would be:

b. more capital goods and more foreign bonds.