Other things the same,a decrease in the price level makes the interest rate decrease,which leads to a depreciation of the dollar in the foreign-currency exchange.

Question

Quizplus · Accepted Answer

According to the theory of interest rate parity, a decrease in the domestic interest rate relative to the foreign interest rate will result in a depreciation of the domestic currency. Therefore, if the price level decreases and causes a decrease in the domestic interest rate, the dollar is likely to depreciate in the foreign exchange market.

Other Things the Same,a Decrease in the Price Level Makes