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.

---

Definitions:

Total-Market Approach

A marketing strategy that targets the entire market by considering the diverse preferences and needs of potential customers.