With the foreign interest rate in the IS model, an increase in the foreign interest rate causes the IS curve to shift right because it leads to a depreciation of the domestic real exchange rate.

Question

Quizplus · Accepted Answer

An increase in the foreign interest rate makes domestic assets less attractive, leading to a depreciation of the domestic currency. This makes domestic goods cheaper relative to foreign goods, increasing exports and shifting the IS curve to the right.

With the Foreign Interest Rate in the IS Model, an Increase