-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₁ could occur when A) the U.S. interest rate differential increases. B) the U.S. interest rate differential decreases. C) the expected future exchange rate falls. D) the current exchange rate falls.

Question

Quizplus · Accepted Answer

An increase in the U.S. interest rate differential (the difference between U.S. interest rates and foreign interest rates) makes holding U.S. dollars more attractive, leading to an increase in demand for U.S. dollars or a shift in the supply curve as investors seek to benefit from higher returns.

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