Why do high interest rates cause capital inflows but reduce investment?
I am confused as to how the three relate to each other. How do high domestic interest rates cause capital inflows but reduce investment?
Investment best answer:
Answer by Sipra M
High rate of interest encourage saver to save more to earn more but it discourage investors to take loan to invest as it becomes costly.
High domestic interest lead to capital inflow to earn more return from capital .
At the same time it discourage investors to invest as capital become costly ( difference of saving and lending rate).
Investment
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