With a contractionary U.S. policy, if the _____ in the domestic interest rate causes the dollar to ________, then the dollar price of foreign good falls whle the foreign price of U.S. goods rises.
A)increase, appreciate
B)increase, depreciate
C)decrease, appreciate
D)rise, remain the same

Question

Quizplus · Accepted Answer

An increase in the domestic interest rate typically attracts foreign capital, leading to an appreciation of the domestic currency (in this case, the dollar). As the dollar appreciates, foreign goods become cheaper in dollar terms, and U.S. goods become more expensive in foreign currency terms.

With a Contractionary U