The theory in this chapter ignores international capital markets. To see what impact they will have, suppose that foreign capital is available to all U.S. businesses at an interest rate of 8 percent, no matter how little or how much is borrowed. Describe how the following events will affect interest rates, investment spending, U.S. savings, and aggregate demand (using the Keynesian model).
Event A: The Fed buys government bonds in an open-market operation.
Event B: The public’s demand for money increases.
Event C: Government spending increases.