Figure 32-7
-Refer to Figure 32-7.Supposing that the Mexican economy starts at r₀ and E₁.Which of the following is consistent with the effects of capital flight?

Question

Figure 32-7 -Refer to Figure 32-7.Supposing that the Mexican economy starts at r₀ and E₁.Which of the following is consistent with the effects of capital flight?

Quizplus · Accepted Answer

Capital flight reduces the supply of loanable funds, which shifts the loanable funds supply curve to the left (from D₀ to D₁ in Panel A), reduces the equilibrium quantity of loanable funds (from NCO₀ to NCO₁ in Panel B), and increases the equilibrium real interest rate (from r₀ to r₁ in Panel A).

Figure 32-7 -Refer to Figure 32-7.Supposing That the Mexican Economy Starts at Economy