Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System

-Refer to Figure 13.3.As U.S.interest rates rise relative to foreign interest rates,the U.S.slides upward along schedule CA0,thus moving towards capital and financial account surplus.

Question

Figure 13.3.U.S.Capital and Financial Account Under a Fixed Exchange Rate System
 
-Refer to Figure 13.3.As U.S.interest rates rise relative to foreign interest rates,the U.S.slides upward along schedule CA0,thus moving towards capital and financial account surplus.

Quizplus · Accepted Answer

This statement is true according to the information given in Figure 13.3. When U.S. interest rates rise relative to foreign interest rates, the demand for U.S. financial assets increases, causing an inflow of foreign capital and a surplus in the capital and financial account. In the diagram, this is represented by a movement along schedule CA0 towards a higher surplus.

Figure 133