In 1998, the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have
A)increased Russian interest rates and net exports.
B)reduced Russian interest rates and net exports.
C)increased Russian interest rates and reduced Russian net exports.
D)reduced Russian interest rates and increased Russian net exports.

Question

Quizplus · Accepted Answer

The default would lead to a loss of investor confidence, causing capital flight and increasing interest rates. The depreciation of the ruble would make Russian goods cheaper abroad, increasing net exports.

In 1998, the Russian Government Defaulted on Its Bonds