Question

Lower interest rates in the US cause the value of the dollar and exports to change...

  • Lower interest rates in the US cause the value of the dollar and exports to change in which of the following ways?
  1. Increase value of the dollar, increasing net exports
  2. Increasing value of the dollar, decreasing net exports
  3. Decreasing value of the dollar, increasing net exports
  4. Decreasing value of the dollar, unchanged net exports
  5. Decreasing value of the dollar, decreasing net exports
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Answer #1

Answer) As interest rates decreases,domestic savings as well as foreign investment in Dollar will go down,causing demand of Dollar to go down and thereby depreciating its value,while in terms of net exports,with lower interest rates,natives start borrowing more and spending more freely and at the same businesses are able to take loans at less rate,thereby the whole demand and supply goes up in the country,decreasing imports,while at the same time giving opportunity for businesses to export more given their incerease capacity and capital,thereby net exports(Exports-imports) goes up.

So,based on above explantion,correct answer is option c) Decreasing value of the Dollar,increasing net exports.

Answer is complete.Thank you!

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