Assume that French budget deficits have raised the French prime interest rate relative to the U.S. T-bill rate. As a result, we would expect the U.S. dollar to depreciate and the U.S. net exports to rise.

Question

Quizplus · Accepted Answer

When the French prime interest rate increases relative to the U.S. T-bill rate, it makes investments in France more attractive and reduces the demand for U.S. dollars. This, in turn, leads to a depreciation of the U.S. dollar, making U.S. exports more competitive and increasing U.S. net exports.

Assume That French Budget Deficits Have Raised the French Prime