Question

Suppose interest rates rise in the United States, but they don’t rise in other nations. As...

Suppose interest rates rise in the United States, but they don’t rise in other nations. As a result of this change, which of the following is true?

I. The demand for the U.S. dollar will increase
II. The demand for the U.S. dollar will decrease
III. U.S. exports will decrease as a result of the changing value of the U.S. dollar.
IV. U.S. exports will increase as a result of the changing value of the U.S. dollar.

CHOOSE ONE

a. I only.

b. I and IV only.

c. I and III only.

d. II and IV only.

e. II and III only.

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Answer #1

Answer : The answer is option c.

Higher interest rate increase the value of currency. If currency value increase then demand for that currency increase. If a country's currency value increase then the country's export decrease and import increase. Here the interest rate rises in United States. As a result, the demand for U.S. dollar will increase and U.S. export will decrease. So, here statements I and III both are correct. Hence option c is the correct answer.

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