Increases in the real interest rate in the U.S. will cause net exports to:
A) decrease, because the dollar depreciates.
B) increase, because the dollar depreciates.
C) decrease, because the dollar appreciates.
D) increase, because the dollar appreciates.

Question

Quizplus · Accepted Answer

An increase in real interest rate in the US would lead to an appreciation of the US dollar. This would make US exports more expensive for foreign buyers while making imports cheaper for US buyers. Thus, reducing net exports, and the best option is C.

Increases in the Real Interest Rate in the U