Final answer:
True. A higher real interest rate typically leads to more foreign investment and an increased demand for a country's currency, thus reducing net capital outflow. While this is the general trend, there can be deviations based on specific economic conditions. The correct answer is option a.
Step-by-step explanation:
The statement 'An increase in a country’s real interest rate reduces that country’s net capital outflow' is generally true. A higher real interest rate in a country tends to attract foreign investment capital, leading to an increase in the demand for that country's currency. This demand strengthens the currency's value and can result in reduced capital outflow, as domestic investments become more attractive compared to foreign opportunities. Moreover, increased domestic interest rates can discourage residents from investing abroad, further reducing net capital outflow. It's important to consider that while this principle generally holds, economic circumstances can vary, and exceptions may occur based on other influencing factors.