Figure 29-3

-Refer to Figure 29-3. Suppose that the U.S.government deficit decreases,causing interest rates in the United States to fall relative to those in the European Union. Assuming all else remains constant,how would this be represented?

Question

Figure 29-3
 
-Refer to Figure 29-3. Suppose that the U.S.government deficit decreases,causing interest rates in the United States to fall relative to those in the European Union. Assuming all else remains constant,how would this be represented?

Quizplus · Accepted Answer

A decrease in the U.S. government deficit leads to lower interest rates, which typically causes the supply of dollars to increase as investors seek higher returns elsewhere, and demand for dollars to decrease as foreign investment in the U.S. becomes less attractive. This results in a movement from C to B to A.

Figure 29-3 -Refer to Figure 29-3. Suppose That the U.S.government Deficit Decreases,causing