If the foreign exchange market is in equilibrium and attractive domestic investment opportunities result in a net inflow of capital,
A) the nation will experience a trade deficit.
B) the nation will experience a trade surplus.
C) interest rates will rise in the loanable funds market.
D) the actual rate of unemployment must exceed the natural rate of unemployment.

Question

Quizplus · Accepted Answer

A net inflow of capital due to attractive domestic investment opportunities will lead to an appreciation of the domestic currency, making exports more expensive and imports cheaper, resulting in a trade deficit.

If the Foreign Exchange Market Is in Equilibrium and Attractive