Question

In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

a. rises and the real exchange rate falls.
b. falls and the real exchange rate rises.
c. falls and the real exchange rate falls.
d. rises and the real exchange rate rises.

Answer 1

The correct answer is b) falls and the real exchange rate rises

Step-by-step explanation:.

In an open economy. The capital net outflow falls when the interest rises, higher interest rates attract foreign capital and cause the exchange rate to rise