Figure 32-7
Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below.
-Refer to Figure 32-7.Suppose the Mexican economy starts at r2 and e2.Which of the following new equilibrium is consistent with capital flight?
A)r2 and e3
B)r3 and e2
C)r3 and e1
D)None of the above is correct.

Question

Figure 32-7
Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below. 
-Refer to Figure 32-7.Suppose the Mexican economy starts at r2 and e2.Which of the following new equilibrium is consistent with capital flight?
A)r2 and e3 
B)r3 and e2 
C)r3 and e1 
D)None of the above is correct.

Quizplus · Accepted Answer

Capital flight typically leads to an increase in interest rates (r) and a depreciation of the currency (lower e), which is consistent with moving from r2 and e2 to r3 and e1.

Figure 32-7 Refer to This Diagram of the Open-Economy Macroeconomic Model of Model