-In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in the United States. This change__________ the supply of dollars and the market moves to a point such as__________.
A) decreases; E
B) decreases; A
C) increases; C
D) increases; D

Question

-In the figure above, suppose the economy is initially at point B. Then the interest rate in Japan rises relative to the interest rate in the United States. This change__________ the supply of dollars and the market moves to a point such as__________.
A) decreases; E 
B) decreases; A 
C) increases; C 
D) increases; D

Quizplus · Accepted Answer

When the interest rate in Japan rises relative to the United States, investors are likely to move their capital to Japan to take advantage of higher returns. This increases the supply of dollars as investors sell dollars to buy yen, moving the market to a point such as C.

-In the Figure Above, Suppose the Economy Is Initially at Point