If the Federal Reserve Increases Interest Rates, Ceteris Paribus

question 107

Multiple Choice

If the Federal Reserve increases interest rates, ceteris paribus,

• A) only the demand curve for U.S. dollars shifts rightward.
• B) the demand curve for U.S. dollars and the demand curve for European euros both shift rightward.
• C) the supply curve of U.S. dollars shifts leftward and the supply curve of European euros shifts rightward.
• D) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S. dollars shifts rightward.

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Definitions:

Year

A period of time consisting of 365 days, or 366 in a leap year, used as a measure of time for calendars, age, and time intervals.

Sponsor

An entity or individual that supports an event, activity, person, or organization financially or through the provision of products or services.

Geometric Average Rate

The average compound return per period over a time span, useful for comparing different investments or portfolios.

Compounding

The process where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes.