A 1-Point Increase in the Real Rate of Interest in the United

question 13

Multiple Choice

A 1-point increase in the real rate of interest in the United States produces less than a 1-point increase in the difference between the U.S. real interest rate and the real interest rate for the rest of the world because

• A) assets across the world become less attractive, face reduced demand, which supports lower prices and correspondingly higher returns.
• B) assets across the world are linked by multinational corporations to U.S. assets and thus U.S. interest rates.
• C) the expected depreciation of the dollar that accompanies any increase in U.S. rates dampens the increase almost immediately.
• D) liquidity concerns hamper pure price arbitrage in exchange markets.
• E) all of the above.

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Definitions:

Relatedness

The need to feel connected and involved with others; it's a fundamental psychological component of human motivation according to some theories.

Self-determination Theory

A theory of motivation that suggests people are most motivated when they feel autonomous, competent, and related to others.

Human Agency

The capacity of individuals to act independently and make their own free choices.

Personal Agency

The ability of people to operate autonomously and make choices freely.