An increase in real interest rates leads to
A)a decrease in exports and an increase in imports.
B)an increase in both exports and imports.
C)a decrease in both exports and imports.
D)an increase in exports and a decrease in imports.
E)no change in either exports or imports.

Question

Quizplus · Accepted Answer

An increase in real interest rates typically appreciates the domestic currency, making exports more expensive for foreign buyers and imports cheaper for domestic consumers. This leads to a decrease in exports and an increase in imports.

An Increase in Real Interest Rates Leads to