When a country experiences capital flight its interest rate
A)and net capital outflow rise.
B)rises and net capital outflow falls.
C)falls and net capital outflow rises.
D)interest rate and net capital outflow fall.

Question

Quizplus · Accepted Answer

Capital flight refers to the situation where investors move their funds out of a country due to economic or political concerns. This leads to a decrease in the demand for domestic assets and an increase in the supply of domestic currency, causing the value of the currency to depreciate. To counter this, the central bank raises interest rates to make domestic assets more attractive to investors, which leads to an increase in interest rates and net capital outflow.

When a Country Experiences Capital Flight Its Interest Rate