When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?
A)Canadian demand for loanable funds and Canadian net capital outflow rose.
B)Canadian demand for loanable funds and Canadian net capital outflow fell.
C)Canadian demand for loanable funds fell, and Canadian net capital outflow rose.
D)Canadian demand for loanable funds rose, and Canadian net capital outflow fell.

Question

Quizplus · Accepted Answer

Capital flight from Mexico in 1994 led to a decrease in demand for loanable funds and net capital outflow from Canada. This is because investors became more cautious and risk-averse, leading them to withdraw their investments from a relatively risky economy like Mexico and redirecting them to safer havens such as Canada. As a result, there was less demand for loanable funds in Canada as investors already had enough funds to invest in the country. Similarly, the net capital outflow decreased as Canadian investors did not have an incentive to invest outside of Canada.

When Mexico Suffered from Capital Flight in 1994, Which of the Following