When a country experiences capital flight, which statement best explains the effects?
A) The interest rate falls because the demand for loanable funds shifts left.
B) The interest rate falls because the supply for loanable funds shifts right.
C) The interest rate rises because the demand for loanable funds shifts right.
D) The interest rate rises because the supply for loanable funds shifts left.

Question

Quizplus · Accepted Answer

Capital flight involves a large-scale exodus of financial assets and capital from a country, leading to a decrease in the supply of loanable funds. This decrease in supply shifts the supply curve to the left, causing interest rates to rise due to the scarcity of available funds.

When a Country Experiences Capital Flight, Which Statement Best Explains