An increase in the real interest rate in Canada will cause the dollar to ________ relative to other currencies and ________ net exports and real GDP.
A) appreciate; increase
B) appreciate; reduce
C) depreciate; increase
D) depreciate; reduce

Question

Quizplus · Accepted Answer

An increase in the real interest rate in Canada makes Canadian assets more attractive, leading to an appreciation of the Canadian dollar. This appreciation makes Canadian goods more expensive for foreign buyers, reducing net exports and potentially decreasing real GDP.

An Increase in the Real Interest Rate in Canada Will