If USInterest Rates Rise While Foreign Interest Rates Remain Unchanged

question 77

Multiple Choice

If U.S.interest rates rise while foreign interest rates remain unchanged,

• A)GDP will not change since the shift in aggregate supply cancels the positive effects on aggregate demand.
• B)the dollar will depreciate and thus reduce prices and output.
• C)foreign capital will be attracted to the United States and the dollar will appreciate.
• D)net exports will increase and the economy will expand.

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Definitions:

Ordinary Annuity

A series of equal payments made at the end of consecutive periods over a fixed length of time.

Compounded Quarterly

When an investment's interest is compounded quarterly, the interest is calculated and added to the principal four times a year.

Perpetuity

A financial instrument that provides a stream of infinite cash flows or payments.

Compounded Monthly

Interest calculated on the initial principal and also on the accumulated interest of previous periods, done monthly.