What impact will the increase in investment demand have on net capital outflow in the small open economy? Briefly explain your answer. (2 marks)
Question
Solution 1
In a small open economy with perfect capital mobility, an increase in investment demand means that more funds are needed for investment purposes. Since the real interest rate is determined by the world interest rate and does not change, the additional funds for investment will be borrowed from abroa Knowee AI is a powerful AI-powered study tool designed to help you to solve study problem.
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