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Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126

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Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126
Chapter 32, Problem 4QR
Textbook Problem
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What is capital flight? When a country experiences capital flight, what is the effect on its interest rate and exchange rate?

To determine
The capital flight and its impact on the interest rate and exchange rate.

Explanation of Solution

The sudden movement of large quantity of capital funds from one country to another country is known as capital flight. The capital flight causes the interest rate of an economy to increase because the demand for the funds in the economy will be higher and the lower interest rate is the main reason behind the capital flight...

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