If U.S.citizens decide to purchase more foreign assets at each interest rate,the U.S.real interest rate
A)increases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow decreases.
B)increases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow increases.
C)decreases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow decreases.
D)decreases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow increases.

Question

Quizplus · Accepted Answer

When U.S. citizens purchase more foreign assets, it means there is an increase in the demand for foreign currency. This leads to a depreciation of the U.S. real exchange rate. As the U.S. interest rate increases, it makes U.S. assets more attractive to foreign investors, leading to an increase in the supply of dollars and a decrease in U.S. net capital outflow. Therefore, option B is the correct answer.

If USCitizens Decide to Purchase More Foreign Assets at Each Interest