Which statement best predicts the effects of an increase in the Canadian real interest rate?
A) Canadian net capital outflow and net capital outflow of other countries would rise.
B) Canadian net capital outflow and net capital outflow of other countries would fall.
C) Canadian net capital outflow would rise, while net capital outflow of other countries would fall.
D) Canadian net capital outflow would fall, while net capital outflow of other countries would rise.

Question

Quizplus · Accepted Answer

An increase in the Canadian real interest rate would make investing in Canada more attractive, causing a decrease in Canadian net capital outflow as Canadians invest more domestically. At the same time, the higher real interest rate would also attract foreign investors, causing an increase in net capital outflow from other countries. Therefore, Canadian net capital outflow would fall, while net capital outflow of other countries would rise.

Which Statement Best Predicts the Effects of an Increase in the Canadian