With perfect capital mobility,a Fed policy that lowers the U.S.interest rate below the foreign rate causes a huge capital ________ that puts pressure on the dollar to ________.

Question

Quizplus · Accepted Answer

With perfect capital mobility, lowering the U.S. interest rate below the foreign rate would lead to a capital outflow as investors seek higher returns abroad. This increased supply of dollars seeking to be exchanged for foreign currency would put downward pressure on the dollar, causing it to depreciate.

With Perfect Capital Mobility,a Fed Policy That Lowers the U