Which of the following is an effect of an increase in the interest rate?
A) It induces firms to invest more.
B) It induces households to increase consumption.
C) It shifts money demand to the right.
D) It leads to the appreciation of the exchange rate.

Question

Quizplus · Accepted Answer

An increase in the interest rate leads to an increase in foreign investment as investors chase higher returns in a country with a higher interest rate. This, in turn, leads to an increase in demand for the country's currency, causing it to appreciate.

Which of the Following Is an Effect of an Increase