Which statement best predicts the effects of a fall in the Canadian real interest rate?
A) Owning Canadian assets becomes less attractive, and net capital outflow rises.
B) Owning Canadian assets becomes less attractive, and net capital outflow falls.
C) Owning Canadian assets becomes more attractive, and net capital outflow rises.
D) Owning Canadian assets becomes more attractive, and net capital outflow falls.

Question

Quizplus · Accepted Answer

When the real interest rate in Canada falls, the return on investments in Canadian assets (like bonds) decreases compared to other countries. This makes Canadian assets less attractive to foreign investors, leading to an increase in net capital outflow as investors seek higher returns elsewhere.

Which Statement Best Predicts the Effects of a Fall in the Canadian