When a country suffers from capital flight, which statement best explains the effects?
A) The supply for loanable funds shifts right, and the interest rate increases.
B) The supply for loanable funds shifts right, and the interest rate decreases.
C) The supply for loanable funds shifts left, and the interest rate increases.
D) The supply for loanable funds shifts left, and the interest rate decreases.

Question

Quizplus · Accepted Answer

Capital flight refers to the movement of large sums of money from one country to another due to economic or political instability. This results in a reduction of the overall supply of loanable funds in the country experiencing capital flight, as investors move their money elsewhere. As a result, the supply for loanable funds shifts left, driving up interest rates due to the lower supply of funds available for borrowing.

When a Country Suffers from Capital Flight, Which Statement Best