Question 1:

In a world of two big countries, A and B, an increase in the risk of investing in Country A

1. will cause the real interest rate in country B to fall.

2. will cause the real interest rate in country A to fall because capital in A will be less productive.

3. will cause investment in Country B to fall as a result of the fact that capital throughout the world is less productive.

4. will cause all of the above to occur.

Choose the correct option.