If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed,then what would the Canadian net capital outflow be?
A) positive
B) negative
C) decreasing
D) increasing

Question

Quizplus · Accepted Answer

If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed, then Canadian investors would prefer to invest their funds in foreign countries, where they can earn a higher return. This would lead to an increase in Canadian net capital outflow, which is defined as the difference between the capital inflow into Canada and the capital outflow from Canada. A positive net capital outflow means that more funds are flowing out of Canada than flowing in, which indicates that Canadian investors are investing in foreign countries.

If the World Real Interest Rate Exceeds the Interest Rate