Figure 32-2

-Refer to Figure 32-2.The curve in panel b shows that as the interest rate rises,
A)domestic investment declines.
B)net capital outflow declines.
C)net capital outflow and domestic investment decline.
D)None of the above is correct.

Question

Figure 32-2

-Refer to Figure 32-2.The curve in panel b shows that as the interest rate rises,
A)domestic investment declines. 
B)net capital outflow declines. 
C)net capital outflow and domestic investment decline. 
D)None of the above is correct.

Quizplus · Accepted Answer

As the interest rate rises, net capital outflow declines because higher interest rates make domestic assets more attractive to investors, reducing the outflow of capital.

Figure 32-2 -Refer to Figure 32-2.The Curve in Panel B Shows That