The key determinant of net capital outflow is the real interest rate.

Question

Quizplus · Accepted Answer

Net capital outflow is primarily determined by the real interest rate because, as the real interest rate increases, domestic assets become more attractive to both domestic and foreign investors, leading to a decrease in net capital outflow. Conversely, when the real interest rate decreases, domestic assets become less attractive, increasing net capital outflow as investors seek higher returns abroad.

The Key Determinant of Net Capital Outflow Is the Real