For a major country with extensive capital flows, what is the effect of an increase in interest rates?
A) There will be an inflow of capital, a currency depreciation, and increased net exports.
B) There will be an inflow of capital, a currency depreciation, and reduced net exports.
C) There will be an outflow of capital, a currency depreciation, and increased net exports.
D) There will be an inflow of capital, a currency appreciation, and reduced net exports.

Question

Quizplus · Accepted Answer

An increase in interest rates attracts foreign capital, leading to currency appreciation, which makes exports more expensive and reduces net exports.

For a Major Country with Extensive Capital Flows, What Is