<p>There is no domestic interest rate; there is a world interest rate.</p>

<p>What you presumably mean to ask is:  How is that a change in the world interest rate, caused by a change in domestic supply or demand, increases capital inflow?</p>

<p>Answer:  Because the foreign supply and demand for output are being held constant, an increase in the interest rate leads foreigners to produce more and consume less.  The excess has to go somewhere, i.e. it has to be lent to a non-foreigner, i.e. to a domestic citizen.</p>

CC BY-SA 3.0
2015-02-12T13:11:46.827Z
2015-02-12T13:11:46.827Z
Steven Landsburg
<p>What I have typed in the title is all I want to know.</p>

<international-trade><balance-of-trade>
How does an increase in domestic interest rate increase capital inflow?
stellahung
# How does an increase in domestic interest rate increase capital inflow?

(Asked by: username_0 on 2015-02-12)

What I have typed in the title is all I want to know.

**Tags:** international-trade, balance-of-trade

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## 1 answers

### Answer by username_1 on 2015-02-12. Score: 0 | Accepted answer

There is no domestic interest rate; there is a world interest rate.

What you presumably mean to ask is: How is that a change in the world interest rate, caused by a change in domestic supply or demand, increases capital inflow?

Answer: Because the foreign supply and demand for output are being held constant, an increase in the interest rate leads foreigners to produce more and consume less. The excess has to go somewhere, i.e. it has to be lent to a non-foreigner, i.e. to a domestic citizen.


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