Suppose that from 1980 to 1987, Canadian net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?
A)an increase in the demand for Canadian currency in the foreign-currency exchange
B)a decrease in the demand for Canadian currency in the foreign-currency exchange
C)an increase in the supply of loanable funds
D)a decrease in the supply of loanable funds

Question

Quizplus · Accepted Answer

A decrease in the supply of loanable funds would lead to higher interest rates, which could reduce net capital outflows as it becomes more attractive for investors to keep their capital within Canada rather than investing abroad.

Suppose That from 1980 to 1987, Canadian Net Capital Outflows