Increases in the real interest rate in the U.S.will cause net exports to:
A)Decrease, because the dollar depreciates
B)Increase, because the dollar depreciates
C)Decrease, because the dollar appreciates
D)Increase, because the dollar appreciates

Question

Quizplus · Accepted Answer

An increase in the real interest rate in the U.S. would lead to an increase in demand for U.S. dollar-denominated financial assets, leading to a stronger demand for the dollar and appreciation of the dollar relative to other currencies. This would make U.S. exports relatively more expensive to foreign buyers, reducing demand for U.S. exports and decreasing net exports.

Increases in the Real Interest Rate in the U