Many economists argue that higher real interest rates in the United States (relative to foreign real interest rates)will lead to a(n)________________ of the dollar and subsequent shifts in the U.S.AD curve and SRAS curve such that Real GDP will ___________________.

Question

Quizplus · Accepted Answer

When the real interest rates in the United States are higher than foreign real interest rates, it would lead to an appreciation of the dollar. An appreciation of the dollar would lead to a decrease in exports and an increase in imports, causing a shift in the U.S. AD curve to the left. This would lead to a decrease in real GDP. Additionally, the appreciation of the dollar would lead to a decrease in the prices of imported goods which would, in turn, lead to a leftward shift in the SRAS curve, resulting in a decrease in real GDP. Therefore, the correct answer is appreciation and decrease.

Many Economists Argue That Higher Real Interest Rates in the United