AP Macroeconomics / Unit 6: Open Economy: International Trade and Finance
6.6 Real Interest Rates and International Capital Flows
Notes
Capital flows toward countries with higher real interest rates. That increases demand for their currency and the supply of loanable funds there.
Practice
Country A's real interest rate rises above B's. Capital flows:
Higher returns attract funds.
Capital flowing into a country causes its currency to:
More demand for it.
Capital inflows increase that country's:
More funds to lend.
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