-In the figure above, the shift in the demand curve for U.S. dollars from D₀ to D₁ could occur when A) the expected future exchange rate falls. B) the U.S. interest rate drops. C) people expect that the dollar will depreciate. D) foreign interest rates drop.

Question

Quizplus · Accepted Answer

A shift in the demand curve for U.S. dollars could occur when foreign interest rates drop. This is because lower foreign interest rates make U.S. investments more attractive, increasing the demand for U.S. dollars as investors exchange their currency for dollars to invest in the U.S.

-In the Figure Above, the Shift in the Demand Curve