A decrease in the real interest rate in the U.S.will cause net exports to:
A)Increase because exports will remain constant but imports will decrease
B)Decrease because exports will decrease and imports will increase
C)Decrease because exports will increase but imports will increase
D)Increase because exports will increase and imports will decrease

Question

Quizplus · Accepted Answer

A decrease in the real interest rate in the U.S. will cause the U.S. currency to depreciate, making exports less expensive and more attractive to foreign buyers. At the same time, a lower real interest rate may stimulate domestic demand for goods and services, resulting in an increase in imports. Therefore, both export and import figures would increase, but the boost in exports would be greater, leading to a net increase in exports and a positive effect on net exports.

A Decrease in the Real Interest Rate in the U