When Japanese interest rates rise, and exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will ____, and U.S. interest rates will ____.
A)increase; increase
B)increase; decrease
C)decrease; decrease
D)decrease; increase

Question

Quizplus · Accepted Answer

When Japanese interest rates rise, Japanese investors are more likely to invest domestically rather than in the United States, decreasing the supply of loanable funds to the U.S. This decrease in supply leads to higher U.S. interest rates.

When Japanese Interest Rates Rise, and Exchange Rate Expectations Remain