Let real interest rates in the United States climb. The dollar, in that case, could appreciate in the short run because higher demand for U.S. assets means higher demand for the dollar. In the long term, though, the dollar could depreciate because
A) the dollar's being valued over parity produces the expectation of depreciation.
B) an expected depreciation of the dollar causes people to sell dollars; this increases the supply of dollars and lowers their price, the exchange rate.
C) an expected depreciation of the dollar makes U.S. assets relatively less attractive; this reduces the demand for dollars and lowers their price, the exchange rate.
D) all of the above.
E) none of the above.
Correct Answer:
Verified
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