Suppose a Reduction in the Domestic One-Year Interest Rate Expected

question 54

Multiple Choice

Suppose a reduction in the domestic one-year interest rate expected to occur in two years .All else fixed,will the reduction in interest rate have which of the following effects in a flexible exchange rate regime?

• A)the real exchange rate will decrease with no change in the nominal exchange rate.
• B)the nominal exchange rate will decrease with no change in the real exchange rate.
• C)both the real and nominal exchange rate will decrease.
• D)no change in either the nominal or real exchange rate.

---

Definitions:

Phospholipid Fatty Acids

Fatty acid components of phospholipids, which are a major class of lipids that form the structural foundation of cell membranes.

Peroxisome

Enzyme-filled vesicle that breaks down fatty acids, amino acids, and toxic substances.

Fatty Acids

Long hydrocarbon chains that are components of lipids, such as fats and oils, important for energy storage and cell structure.

Hydrogen Peroxide

A chemical compound (H2O2) used as an oxidizer, bleaching agent, and antiseptic.