In an open economy, with a fixed nominal exchange rate and high capital mobility, any ____ in interest
Rates will generate ______________ .
A) fall, a capital outflow
B) fall, a capital inflow
C) rise, a capital outflow
D) rise, no change

Question

Quizplus · Accepted Answer

In an open economy with a fixed nominal exchange rate and high capital mobility, a fall in interest rates makes domestic assets less attractive, leading to a capital outflow as investors seek higher returns elsewhere.

In an Open Economy, with a Fixed Nominal Exchange Rate