Figure 13.3. U.S. Capital and Financial Account Under a Fixed Exchange Rate System

-Refer to Figure 13.3.Falling investment profitability in the United States,relative to investment profitability abroad,would shift the U.S.capital and financial account schedule downward from CA? to CA?,resulting in net financial outflows from the United States.

Question

Figure 13.3. U.S. Capital and Financial Account Under a Fixed Exchange Rate System
 
-Refer to Figure 13.3.Falling investment profitability in the United States,relative to investment profitability abroad,would shift the U.S.capital and financial account schedule downward from CA? to CA?,resulting in net financial outflows from the United States.

Quizplus · Accepted Answer

This is because falling investment profitability in the United States would decrease the demand for U.S. financial assets and increase the demand for foreign financial assets, leading to a net outflow of financial resources from the United States. This would be reflected in a downward shift of the capital and financial account schedule from CA? to CA?.

Figure 133