When a country experiences capital flight, which of the following best explains the effects?
A)The interest rate falls because the demand for loanable funds shifts left.
B)The interest rate falls because the supply for loanable funds shifts right.
C)The interest rate rises because the demand for loanable funds shifts right.
D)The interest rate rises because the supply for loanable funds shifts left.

Question

Quizplus · Accepted Answer

Capital flight refers to a situation where investors and savers move their funds out of a country to invest in other countries perceived to offer more favorable returns or safer investments. When this happens, the supply of loanable funds within the country decreases, causing the supply curve to shift left. As a result, the interest rate rises, making borrowing more expensive for firms and individuals.

When a Country Experiences Capital Flight, Which of the Following