For the United States, suppose the annual interest rate on government securities equals 12 percent, while the annual inflation rate equals 8 percent.For Japan, suppose the annual interest rate equals 5 percent.These variables would cause investment funds to flow from

Question

Quizplus · Accepted Answer

With a higher interest rate and inflation rate in the United States, investors are more likely to move their funds to Japan, where they can earn a lower but more stable return on their investment. This would increase the supply of dollars in the foreign exchange market and decrease demand for yen, causing the dollar to depreciate relative to the yen.

For the United States, Suppose the Annual Interest Rate on Government