If Great Britain experienced capital flight, which statement would best explain the effects?
A) The supply of British pounds curve would shift left, which would make the real exchange rate of the British pound appreciate.
B) The supply of British pounds curve would shift left, which would make the real exchange rate of the British pound depreciate.
C) The supply of British pounds curve would shift right, which would make the real exchange rate of the British pound appreciate.
D) The supply of British pounds curve would shift right, which would make the real exchange rate of the British pound depreciate.

Question

Quizplus · Accepted Answer

Capital flight involves selling domestic currency to buy foreign assets, increasing the supply of the domestic currency in the foreign exchange market. This increased supply of British pounds would shift the supply curve right, leading to a depreciation of the pound.

If Great Britain Experienced Capital Flight, Which Statement Would Best