When the central bank of the United States increases the interest rate,

Question

Quizplus · Accepted Answer

When the central bank of the United States increases the interest rate, it makes holding dollars more attractive as the higher interest rates will provide a higher return on investments denominated in dollars. This leads to an increase in the demand for dollars, which causes the dollar to appreciate in value. As the dollar becomes more expensive, U.S. exports become more expensive, making them less competitive in foreign markets. This results in a decrease in net exports, meaning that the dollar will appreciate and net exports will fall.

When the Central Bank of the United States Increases the Interest