An increase in the real interest rate outside of Canada will ________ the demand for the dollar and ________ the demand for foreign financial assets.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

An increase in the real interest rate outside of Canada makes foreign financial assets more attractive, leading to an increase in demand for them and a decrease in demand for the Canadian dollar.

An Increase in the Real Interest Rate Outside of Canada