If the U.S.interest rate rises relative to the interest rate in other countries, then the supply of dollars ________ and the demand for dollars ________.

Question

Quizplus · Accepted Answer

If the U.S. interest rate rises relative to interest rates in other countries, then it becomes more attractive for investors to save and invest in the U.S. Therefore, the demand for U.S. dollars increases. At the same time, the higher interest rates in the U.S. make it more costly for U.S. firms and households to borrow, which reduces their demand for dollars. This leads to a decrease in the supply of dollars. Therefore, the correct answer is C, where the supply of dollars decreases and the demand for dollars increases.

If the USInterest Rate Rises Relative to the Interest Rate in Other