An increase in German Treasury interest rates, all else held constant, causes a rightward shift in the __________ euros and causes the dollar to __________ against the euro.
A) supply of, appreciate
B) supply of, depreciate
C) demand for, appreciate
D) demand for, depreciate

Question

Quizplus · Accepted Answer

An increase in German Treasury interest rates would lead to an increase in demand for euros as higher interest rates attract more foreign investment. This would cause a rightward shift in the demand curve for euros. Simultaneously, an increase in demand for euros would cause the euro to appreciate against the dollar, as investors buy more euros with dollars. Therefore, the correct answer is D, demand for, depreciate.

An Increase in German Treasury Interest Rates, All Else Held