If the real interest rate rises relative to foreign rates, then
A)appreciation of the dollar is likely.
B)capital inflows could increase.
C)net exports could fall.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

When the real interest rate in a country rises relative to foreign rates, it tends to attract foreign capital due to higher returns, leading to an appreciation of the domestic currency (in this case, the dollar). This appreciation makes domestic goods more expensive abroad, potentially reducing net exports.

If the Real Interest Rate Rises Relative to Foreign Rates