Practice Quiz

CLEP Principles of Macroeconomics Exam Prep

Category - Macroeconomics

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During the 1990s and due to a civil war, Nigeria experienced capital flight, especially by foreign investors. Capital flight is a significant and sudden reduction in the _______ within a country.
  1. Insurance against fraud
  2. Loanable funds
  3. Supply assets
  4. Demand for assets
Explanation
Answer - D - Capital flight is a significant and sudden reduction in the demand for assets.

Key Takeaway: When investors become concerned about the safety and security of their investments, they remove their capital from the economy. Factors affecting the safety and security of investments are political unrest and nationalization of assets. Capital flights lead to an increase in interest rates and currency hyperinflation.
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