52. What is capital flight? When a country experiences capital flight, what is t
ID: 1118042 • Letter: 5
Question
52. What is capital flight? When a country experiences capital flight, what is the effect on its interest rate and the value of the currency? 53. Ifa car in Japan costs 500 000 yen, a similar car in Canada costs $10 000, and a dollar can buy 100 yen, what are the nominal and real exchange rates? 54. Describe the economic logic behind the theory of purchasing-power parity If the Bank of Canada started printing large quantities of Canadian dollars, what would happen to the number of Japanese yen a dollar could buy? 55. 56. Describe the economic logic behind the theory of interest rate parity.Explanation / Answer
Answer.)
Q52.) Capital flight is a large and sudden movement of funds out of a country. Capital flight causes the interest rate to increase and the exchange rate to depreciate. The increased demand for loanable funds causes the equilibrium real interest rate to rise.