Other things being equal, a reduction in Canadian interest rates relative to foreign interest rates should:
A) increase the Canadian capital account balance.
B) increase the Canadian current account balance.
C) reduce the Canadian capital account balance.
D) leave the Canadian current and capital account balances unchanged.

Question

Quizplus · Accepted Answer

A reduction in Canadian interest rates relative to foreign interest rates would likely lead to a decrease in foreign investment in Canada, as investors seek higher returns elsewhere. This would reduce the Canadian capital account balance.

Other Things Being Equal, a Reduction in Canadian Interest Rates