The Inclusion of a Strong Correlation Between the Exchange Rate

question 61

Multiple Choice

The inclusion of a strong correlation between the exchange rate and the real rate of interest serves to

• A) make the IS curve steeper because higher interest rates mean higher exchange rates and larger net exports.
• B) make the IS curve flatter because higher interest rates mean higher exchange rates and smaller net exports.
• C) make the LM curve steeper because higher interest rates mean larger inflows of currency and correspondingly greater sensitivity of the demand for money to changes in the interest rate.
• D) make the LM curve flatter because higher interest rates mean higher exchange rates and smaller demand for foreign currencies.
• E) none of the above.

---

Definitions:

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of that good or service that suppliers are willing and able to supply to the market.

Change in Supply

A change in the quantity supplied of a good or service at at least one price that is caused by factors other than a change in the price of that good or service.

Quantity Supplied

The total amount of a product that producers are willing and able to sell at a given price over a specific period.

Quantity of Cameras

The total number of cameras produced, held in inventory, or sold in a given period.