Asked by Garrett Jones on May 23, 2024
Verified
As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.
Net Capital Outflow
The difference between domestic savings and domestic investment, representing the amount of capital leaving a country to invest abroad minus the capital inflowing from abroad for investment domestically.
Interest Rate
The percentage of a loan charged to the borrower as interest, usually represented as an annual percentage rate of the remaining loan balance.
- Articulate the link between the market for borrowing and lending money, the net outflow of capital, and the exchange market for foreign currencies.
Verified Answer
ID
Irene DepacinaMay 27, 2024
Final Answer :
True
Explanation :
As interest rates rise in a country, domestic assets become more attractive to both domestic and foreign investors, leading to an increase in the demand for the country's currency. This can result in a decrease in capital outflows as investors are more inclined to invest within the country or even an increase in capital inflows, potentially moving net capital outflow from a positive to a negative value.
Learning Objectives
- Articulate the link between the market for borrowing and lending money, the net outflow of capital, and the exchange market for foreign currencies.
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