(I)Controls on capital outflows may increase capital flight by weakening confidence in the government.
(II)Controls on capital outflows are an inadequate substitute for financial reform to deal with currency crises.

Question

Quizplus · Accepted Answer

Both statements are true. Controls on capital outflows can indeed exacerbate capital flight by undermining confidence in the government's economic management. Additionally, relying solely on controls on capital outflows without addressing underlying financial system issues is generally seen as an inadequate approach to managing currency crises, highlighting the importance of comprehensive financial reform.

(I)Controls on Capital Outflows May Increase Capital Flight by Weakening