-In the figure above, the shift in the supply curve for U.S. dollars from S? to S? could occur when
A) the U.S. interest rate differential increases.
B) the U.S. interest rate differential decreases.
C) the expected future exchange rate falls.
D) the current exchange rate falls.

Question

-In the figure above, the shift in the supply curve for U.S. dollars from S? to S? could occur when
A) the U.S. interest rate differential increases. 
B) the U.S. interest rate differential decreases. 
C) the expected future exchange rate falls. 
D) the current exchange rate falls.

Quizplus · Accepted Answer

When the U.S. interest rate differential increases, it means U.S. interest rates are higher relative to other countries. This makes holding U.S. dollar-denominated assets more attractive, increasing the demand for U.S. dollars and shifting the supply curve for U.S. dollars to the right.

-In the Figure Above, the Shift in the Supply Curve