If the interest rates in the United States increases, then the demand for U.S. dollars the supply of U.S. dollars .

Question

Quizplus · Accepted Answer

If interest rates in the United States increase, it becomes more attractive for foreign investors to save in U.S. dollars due to higher returns on their investments. Therefore, the demand for U.S. dollars increases. At the same time, this can lead to inflation due to the increased demand for goods and services. To reduce the inflation, the Federal Reserve may increase interest rates further, which can decrease the supply of U.S. dollars by making U.S. investments less attractive. Thus, the correct answer is that the demand for U.S. dollars increases but the supply of U.S. dollars decreases.

If the Interest Rates in the United States Increases, Then