Question

A civil war abroad causes foreign investors to seek a safe haven for their funds in the United States, leading to ________ U.S. interest rates and a ________ U.S. dollar.
a. higher, weaker
b. higher, stronger
c. lower, weaker
d. lower, stronger

Answer 1

Answer :- Option 'd' is the correct Answer

A civil war abroad causes foreign investors to seek a safe haven for their funds in the United States, leading to lower U.S. interest rates and a stronger U.S. dollar.

When foreign investors increase the amount of U.S. assets which are purchased by them , this will cause to decreases the capital outflow, which in turn, causes the decrease in the demand for loanable funds and leads to lower U.S. interest rates.

As foreigners demand more U.S. assets, they also must demand more dollars to buy those assets, which causes the dollar to appreciate (grow stronger).