An increase in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.

Question

Quizplus · Accepted Answer

When the domestic interest rate increases, domestic assets become more attractive to investors, leading to a rightward shift in the demand for these assets. This increased demand strengthens the domestic currency, causing it to appreciate.

An Increase in the Domestic Interest Rate Causes the Demand