1. its savings to increase and world investment in it to decline so that its net capital outflow will increase.
2. its savings to decline and world investment in it to increase so that its net capital inflow will decrease.
3. its savings to increase and world investment in it to decline so that its net capital inflow will decrease.
4. its savings to decline and world investment in it to increase so that its net capital inflow will increase.
Choose the correct option.
Option 4 is the correct choice. The fall in the interest rate causes investment to increase with a movement down to the right along the country's investment function. It also causes savings to decline as the country's residents move downward to the left along their savings function. If the country was experiencing a net capital inflow, the increase in investment relative to saving will increase that inflow. If the country was experiencing a net capital outflow, that outflow will decline.