For the United States,suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent.For Japan,suppose the annual interest rate equals 5 percent.These variables would cause investment funds to flow from:
A) The United States to Japan,causing the dollar to depreciate
B) The United States to Japan,causing the dollar to appreciate
C) Japan to the United States,causing the yen to depreciate
D) Japan to the United States,causing the yen to appreciate

Question

Quizplus · Accepted Answer

The higher interest rate in the United States is more attractive to investors than the lower interest rate in Japan. However, the higher inflation rate in the United States means that the real rate of return on investment in government securities is only 4 percent (12% - 8%), while the real rate of return in Japan is 5 percent. Therefore, investment funds would flow from the United States to Japan, causing the dollar to depreciate.

For the United States,suppose the Annual Interest Rate on Government