A decrease in the domestic interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to depreciate.

Question

Quizplus · Accepted Answer

A decrease in domestic interest rates will decrease the expected return on domestic deposits, making them less attractive to investors, and therefore causing a shift of the expected return schedule for domestic deposits to the left. This decreases the demand for the domestic currency, causing it to depreciate.

A Decrease in the Domestic Interest Rate Shifts the Expected