Question

Now, suppose that mexico experiences a sudden bout of political turmoil, which causes world financial markets to become uneasy. because people now view mexico as unstable, they decide to pull some of their assets out of mexico and put them into more stable economies. this unexpected shock to the demand for assets in mexico is known as capital flight.

Answer 1

This is a true statement. When assets are lost from a country because of an event that leads to the overall disappearance of wealth from the country, this is the mechanism taking place. After capital flight takes place, it makes it much more expensive for the country to import goods.