For a major country with extensive capital flows, what is the effect of a decrease in interest rates?
A) There will be an inflow of capital, a currency depreciation, and increased net exports.
B) There will be an inflow of capital, a currency depreciation, and reduced net exports.
C) There will be an outflow of capital, a currency depreciation, and increased net exports.
D) There will be an inflow of capital, a currency appreciation, and reduced net exports.

Question

Quizplus · Accepted Answer

A decrease in interest rates typically leads to an outflow of capital as investors seek higher returns elsewhere, causing the currency to depreciate. This depreciation makes exports cheaper and more competitive, leading to increased net exports.

For a Major Country with Extensive Capital Flows, What Is