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

Question

a.

more capital goods and more foreign bonds.
b.

more foreign bonds but fewer capital goods.
c.

more capital goods but fewer foreign bonds.
d.

fewer capital goods and fewer foreign bonds.

Answer 1

If the real interest rate in a country falls, domestic residents will likely desire to purchase:

c. more capital goods but fewer foreign bonds.

A lower real interest rate typically incentivizes domestic investment, as borrowing costs decrease, making it more attractive for residents to invest in capital goods. At the same time, lower interest rates may make foreign bonds less attractive relative to domestic investments, leading to a decrease in the desire to purchase foreign bonds.