An increase in U.S.real interest rates causes the dollar to _________________,which tends to __________________ U.S.Real GDP.

Question

Quizplus · Accepted Answer

An increase in U.S. real interest rates makes holding assets such as U.S government bonds more attractive, thus increasing the demand for the dollar and causing it to appreciate. A stronger dollar makes U.S. exports more expensive, reducing their demand and leading to a decrease in U.S. real GDP. Therefore, an increase in U.S. real interest rates tends to lower U.S. real GDP.

An Increase in U