When the U.S. real interest rate falls, owning U.S. assets becomes
A)less attractive and so U.S. net capital outflow rises.
B)less attractive and so U.S. net capital outflow falls.
C)more attractive and so U.S. net capital outflow rises.
D)more attractive and so U.S. net capital outflow falls.

Question

Quizplus · Accepted Answer

When the U.S. real interest rate falls, the return on U.S. assets decreases, making them less attractive to both domestic and foreign investors. This leads to an increase in net capital outflow as investors seek higher returns elsewhere.