Use the Following to Answer Questions

question 37

Multiple Choice

Use the following to answer questions .
Exhibit: Exchange Rates
-(Exhibit: Exchange Rates) Suppose interest rates in the U.S. rise relative to interest rates in
Foreign countries. This event will

• A) decrease the demand for dollars and lower the exchange rate.
• B) decrease the supply of dollars and lower the exchange rate.
• C) increase the demand for dollars and raise the exchange rate.
• D) increase the supply of dollars and lower the exchange rate.

---

Definitions:

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in GDP, income, employment, and trade.

Limit Pricing

A strategy where a firm sets the price of its product low enough to deter new entrants into the market.

Game Theory

The study of how people behave in strategic situations in which individuals must take into account not only their own possible actions but also the possible reactions of others. Originally developed to analyze the best ways to play games like poker and chess.

Strategic Behavior

Self-interested economic actions that take into account the expected reactions of others.