In the open-economy macroeconomic model, what is the key determinant of net capital outflow?
A) the nominal exchange rate
B) the nominal interest rate
C) the real exchange rate
D) the real interest rate

Question

Quizplus · Accepted Answer

The key determinant of net capital outflow is the real interest rate. A higher real interest rate in a country will attract foreign investors to invest in that country's assets, leading to a capital inflow, while a lower real interest rate will lead to a capital outflow as domestic investors seek higher returns in other countries. The nominal exchange rate, nominal interest rate, and real exchange rate all have an effect on net capital outflow, but they are not the key determinant.

In the Open-Economy Macroeconomic Model, What Is the Key Determinant