When a country experiences capital flight its
A)net capital outflow increases and its real exchange rate rises.
B)net capital outflow increases and its real exchange rate falls.
C)net capital outflow decreases and its real exchange rate rises.
D)net capital outflow decreases and its real exchange rate falls.

Question

Quizplus · Accepted Answer

Capital flight refers to the situation where investors move their assets out of a country to seek safer or more profitable opportunities abroad. This leads to an increase in the net capital outflow of the country, as capital is leaving the country. As a result, demand for the country's currency decreases, causing its real exchange rate to fall. This makes the country's exports cheaper and more attractive to foreign buyers, which could help to offset some of the negative effects of capital flight.

When a Country Experiences Capital Flight Its