AP® Macroeconomics

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Moderate

Capital Inflow & Real Interest Rates

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Suppose foreigners decided to move assets from German banks to US banks because the U.S. has higher interest rates.

Ceteris Paribus, which of the following outcomes is most likely to occur after that decision?

A

Real interest rates fall, quantity of loans increase.

B

Real interest rates rise, quantity of loans increase.

C

Real interest rates rise, quantity of loans decrease.

D

Real interest rates fall; quantity of loans decrease.

E

Stasis: No shift of either curve; just a quantity change.