Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States.Other things the same,
A)this will increases U.S.net capital outflow and decrease Canadian net capital outflow.
B)this will decreases U.S.net capital outflow and increase Canadian net capital outflow.
C)this will only increase U.S.net capital outflow.
D)this will only increase Canadian net capital outflow.

Question

Quizplus · Accepted Answer

If the real return from operating factories in Canada rises relative to the real rate of return in the United States, it will incentivize investors to move their money to Canada in search of higher returns. As a result, US net capital outflow will increase, as investors will be sending more money to Canada. On the other hand, Canadian net capital outflow will decrease as investors will be keeping their money in Canada, resulting in a decrease in the outflow of capital. Therefore, option A is the correct choice.

Suppose That the Real Return from Operating Factories in Canada