In a short-run model of a large open economy, after net capital outflow is subst

Question

In a short-run model of a large open economy, after net capital outflow is substituted for
net exports in the IS curve:
A) the larger the absolute value of the responsiveness of net capital outflow with
respect to the interest rate, the flatter the IS curve.
B) the larger the absolute value of the responsiveness of net capital outflow with
respect to the interest rate, the steeper the IS curve.
C) if both domestic investment and net capital outflow are very responsive to the
interest rate, they will tend to cancel each other out.
D) the slope of the IS curve depends only on the interest responsiveness of investment
and the marginal propensity to consume.

Explanation / Answer

Answer:

B) the larger the absolute value of the responsiveness of net capital outflow with
respect to the interest rate, the steeper the IS curve.

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