A decrease in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________,everything else held constant.

Question

Quizplus · Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive compared to foreign assets, leading to a shift in demand for domestic assets to the left. As investors sell domestic assets to buy foreign ones, the domestic currency depreciates due to increased supply in the foreign exchange market.

A Decrease in the Domestic Interest Rate Causes the Demand