Affect of falling domestic investment on trade surplus and net capital outflows

Question:

How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world, investment in both economies, and the world real interest rate?

Summary:

Domestic investment can affect the economy as the production activities will decrease, resulting in falling sales, falling employment, falling interest rates, etc. The answer is discussed in detail.