For a developing country, a _____ can promote economic instability because it forces the country to ______.
A) capital inflow, adopt a contractionary monetary policy
B) capital inflow, adopt an expansionary monetary policy
C) capital outflow, devalue its currency
D) capital outflow, revalue its currency

Question

Quizplus · Accepted Answer

A capital outflow can promote economic instability for a developing country because it represents a loss of foreign investment and a decrease in foreign currency reserves, which can lead to a devaluation of the country's currency. In order to maintain stability and prevent further devaluation, the country may have to implement measures such as raising interest rates or cutting government spending, which can have negative impacts on economic growth and development.

For a Developing Country, a _____ Can Promote Economic Instability