Suppose that the United States and European Union are the only trading partners in the world. If interest rates in the United States are significantly lower than those in the European Union, we would expect the:

Question

Quizplus · Accepted Answer

When interest rates in the United States are lower than those in the European Union, investors will find it less attractive to hold dollars and will seek to invest in other currencies, such as the euro, which offer higher interest rates. This will reduce demand for dollars, causing the dollar to depreciate.

Suppose That the United States and European Union Are the Only