Which of the following best describes the relationship between real interest rates and net exports?
A)The relationship is positive.
B)There is no relationship because both imports and exports are unaffected by real interest rates.
C)The relationship is negative.
D)It is not possible to determine the relationship between the two because exports are negatively related to interest rates and imports are positively related to real interest rates.
E)It is not possible to determine the relationship between the two because exports are positively related to real interest rates and imports are negatively related to real interest rates.

Question

Quizplus · Accepted Answer

Real interest rates influence the value of a country's currency, and a higher real interest rate makes that currency more attractive to foreign investors. An appreciated currency makes a country's exports more expensive, which tends to decrease the demand for exports and increase the demand for imports, ultimately leading to a decrease in net exports. Therefore, there is a negative relationship between real interest rates and net exports.

Which of the Following Best Describes the Relationship Between Real