What is consistent with capital flight from Mexico?
A) The Mexican capital outflow decreases.
B) The real exchange rate of the peso depreciates.
C) The Mexican real interest rate decreases.
D) The Mexican demand for loanable funds increases.

Question

Quizplus · Accepted Answer

When capital is leaving Mexico, there is a decrease in demand for peso-denominated assets, which causes the peso to depreciate. This makes imports more expensive and exports cheaper, which can help offset capital flight. However, a depreciating currency can also lead to inflationary pressures and can make it harder for the government to borrow money internationally.

What Is Consistent with Capital Flight from Mexico