The equilibrium interest rate will ________ if foreign income and the foreign real interest rate increase.

Question

Quizplus · Accepted Answer

When foreign income and the foreign real interest rate increase, demand for domestic goods by foreigners is likely to increase, leading to an increased demand for the domestic currency. This can lead to an appreciation of the domestic currency and an increase in the equilibrium interest rate as the economy adjusts to the new levels of demand and supply in the foreign exchange market.

The Equilibrium Interest Rate Will ________ If Foreign Income and the Foreign