In the open-economy macroeconomic model, which of the following is the key determinant of net capital outflow?
A)the nominal exchange rate
B)the nominal interest rate
C)the real exchange rate
D)the real interest rate

Question

Quizplus · Accepted Answer

The key determinant of net capital outflow is the real interest rate as it indicates the return on domestic assets compared to foreign assets. A higher real interest rate will lead to a higher return on domestic assets, attracting foreign investors and increasing capital inflow, resulting in a decrease in net capital outflow. On the other hand, a lower real interest rate will lead to a lower return on domestic assets, leading to capital outflow and an increase in net capital outflow.

In the Open-Economy Macroeconomic Model, Which of the Following Is