True or False?
The statement is true. The effect is to shift the investment function of Country A to the right and that of Country B to the left with little effect, if any, on the world investment function. Investment will increase relative to saving in Country A and fall relative to saving in Country B. The net capital flow from A to B will decrease (or the net flow from B to A will increase). If the world investment function does not change there will be no initial change in the world interest rate. Nevertheless, we must keep in mind that the reallocation of world capital stock from B to A over the long run may have differential effects on the marginal productivities of capital in the two countries and could lead to changes in the world interest rate in one direction or the other.