If after a country experiences capital flight,people become more confident about the safety of its assets,then in that country
A)the real exchange rate and the real interest rate will rise.
B)the real exchange rate will rise and the real interest rate will fall.
C)the real exchange rate will fall and the real interest rate will rise.
D)the real exchange rate and the real interest rate will fall.

Question

Quizplus · Accepted Answer

Capital flight often leads to a decrease in demand for the country's currency, causing the real exchange rate to fall. However, if people become more confident about the safety of assets in the country after capital flight, demand for the currency will increase, causing its value to rise. At the same time, an increase in confidence in the safety of assets could lead to a decrease in the real interest rate, as investors may be willing to accept lower returns to invest in the country. Therefore, the real exchange rate will rise and the real interest rate will fall.

If After a Country Experiences Capital Flight,people Become More Confident