When a country suffers from capital flight, which of the following best explains the effects?
A)The supply for loanable funds shifts right, and the interest rate increases.
B)The supply for loanable funds shifts right, and the interest rate decreases.
C)The supply for loanable funds shifts left, and the interest rate increases.
D)The supply for loanable funds shifts left, and the interest rate decreases.

Question

Quizplus · Accepted Answer

Capital flight refers to the movement of capital from one country to another, usually due to political or economic instability. When this happens, investors sell their assets in the domestic market and convert them to foreign currency or invest them in more stable countries. This decreases the supply of loanable funds in the domestic market, shifting the supply curve to the left. As a result, the interest rate increases as borrowers compete for a smaller pool of available funds.

When a Country Suffers from Capital Flight, Which of the Following