Question

If the domestic rate of return on assets decreases, then __________.

A.the supply of domestic currency will increase
B.the demand for domestic currency will fall
C.the value of the domestic currency will fall
D.all of the above

Answer 1

A decrease in the domestic rate of return on assets can affect savings, government finances, and domestic investment in various ways.

Step-by-step explanation:

If the domestic rate of return on assets decreases, it can have various effects on the economy. Let's explore the three given options:

1. A lower domestic savings rate: When the rate of return on assets decreases, individuals may be less motivated to save their money domestically. This could lead to a decrease in domestic savings, impacting overall investment and economic growth.
2. The government changes from running a budget surplus to running a budget deficit: A decrease in the rate of return on assets could also impact government finances. If the government relied on returns from assets to fund its budget surplus, a decline in returns could contribute to a shift from a surplus to a deficit.
3. The rate of domestic investment surges: Conversely, if the rate of return on assets decreases, some investors may be motivated to invest more domestically, seeking higher returns. This surge in domestic investment could help stimulate economic growth.

Overall, a decrease in the domestic rate of return on assets can have complex effects on savings, government finances, and domestic investment. These effects depend on the specific circumstances and dynamics of the economy.