A lower real interest rate in the United States relative to the rest of the world will tend to
A)increase the value of the dollar and increase net exports.
B)decrease the value of the dollar and have an indeterminate effect on net exports.
C)decrease the value of the dollar and increase net exports.
D)increase the value of the dollar and decrease net exports.
E)decrease the value of the dollar and decrease net exports.

Question

Quizplus · Accepted Answer

A lower real interest rate in the United States relative to the rest of the world will decrease the return on U.S. investments and make them less attractive to foreign investors. This will cause a decrease in the demand for U.S. dollars and lead to a depreciation of its value. A weaker dollar will make U.S. exports cheaper and more attractive to foreign buyers, leading to an increase in net exports.

A Lower Real Interest Rate in the United States Relative