Suppose, for whatever reason, real interest rates in the United States are projected to grow and real interest rates in Europe are projected to remain flat and suppose that before this happens the exchange rate between the euro and the dollar is .75 euros/dollar. The resulting exchange rate would likely

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When real interest rates in the United States increase relative to those in Europe, it typically leads to an inflow of capital into the U.S. as investors seek higher returns. This increases demand for the dollar, appreciating its value relative to the euro. Thus, the exchange rate would likely rise, meaning more euros per dollar.

Suppose, for Whatever Reason, Real Interest Rates in the United