Other things remaining the same, if the U.S. interest rate differential increases, the demand curve for U.S. dollars shifts ________ and the supply curve of U.S. dollars shifts ________.
A) rightward; rightward
B) rightward; leftward
C) leftward; rightward
D) leftward; leftward

Question

Quizplus · Accepted Answer

When the U.S. interest rate differential increases, it means U.S. assets become more attractive to foreign investors, leading to an increased demand for U.S. dollars as they buy these assets, shifting the demand curve rightward. Conversely, Americans find foreign assets less attractive, reducing their supply of dollars to the foreign exchange market as they are less inclined to exchange dollars for foreign currencies to invest abroad, shifting the supply curve leftward.

Other Things Remaining the Same, If the U