When interest rates fall in Canada (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.
A) falls; less; fall
B) falls; less; rise
C) falls; more; fall
D) rises; less; fall

Question

Quizplus · Accepted Answer

When interest rates fall in Canada, the value of the dollar falls because investors will move their money to other countries with higher interest rates, leading to a decrease in demand for the Canadian dollar. With a weaker currency, domestic goods become less expensive for foreign buyers, which leads to an increase in net exports. Therefore, the correct choice is B, as it states that the value of the dollar falls, domestic goods become less expensive, and net exports rise.

When Interest Rates Fall in Canada (With the Price Level