In a flexible exchange rate regime,a reduction in the expected future exchange rate will cause
A)the IP curve to shift to the left / up.
B)the IP curve to shift to the right / down.
C)a movement along the IP curve.
D)neither a shift nor movement along the IP curve.

Question

Quizplus · Accepted Answer

A reduction in the expected future exchange rate decreases the expected return on foreign assets, causing the IP curve to shift to the left/up as domestic currency is expected to appreciate.

In a Flexible Exchange Rate Regime,a Reduction in the Expected