Which of the following causes an appreciation of the domestic currency?

Question

Quizplus · Accepted Answer

A lower domestic interest rate due to a lower expected inflation rate would lead to higher demand for the domestic currency, which would cause its appreciation.

Option B is incorrect as a decline in the domestic real interest rate (nominal interest rate adjusted for inflation) would lead to a decrease in demand for the domestic currency, leading to depreciation.

Option C is incorrect as an increase in the domestic money supply would cause inflation, thereby decreasing the value of the domestic currency and causing its depreciation.

Therefore, the correct answer is A.

Which of the Following Causes an Appreciation of the Domestic