In the open-economy macroeconomic model,a decrease in the domestic interest rate shifts
A)demand in the market for foreign-currency exchange to the right.
B)demand in the market for foreign-currency exchange to the left.
C)supply in the market for foreign-currency exchange to the right.
D)supply in the market for foreign-currency exchange to the left.

Question

Quizplus · Accepted Answer

A decrease in the domestic interest rate makes domestic assets less attractive, leading to capital outflow. This increases the supply of domestic currency in the foreign exchange market as investors exchange it for foreign currency.

In the Open-Economy Macroeconomic Model,a Decrease in the Domestic Interest