MULTIPLE-CHOICE QUESTIONS 1. Assume that the real interest rate in the United States is 3 percent and the real interest rate in Mexico is 1 percent. In which direction would capital flow move? (A) Capital flow would move from the United States to Mexico because Mexican investors would receive a better return on their investment. (B) Capital flow would move from Mexico to the United States because American investors would receive a better return on their investment. (C) Capital flow would move from the United States to Mexico because American investors would receive a better return on their investment. (D) Capital flow would move from Mexico to the United States because Mexican investors would receive a better return on their investment. (E) Capital flow would move from Mexico to the United States and create a trade surplus in Mexico.2. Based on your answer to question 1, what would be the impact on the United States? (A) Increasing the supply of loanable funds, increasing the real interest rate, and discouraging investment (B) Increasing the supply of loanable funds, decreasing the real interest rate, and encouraging investment (C) Increasing the supply of loanable funds, increasing the real interest rate, and encouraging investment (D) Decreasing the supply of loanable funds, increasing the real interest rate, and discouraging investment (E) Decreasing the supply of loanable funds, decreasing the real interest rate, and discouraging investment 3. What is the trade-off that results from an increase in capital flow? (A) A decrease in net exports (B) A decrease in aggregate supply (C) A decrease in government expenditures (D) A decrease in real gross domestic product (E) A decrease in consumption