(Figure: the Domestic Interest Rate) Using the Graph, If the Dollar

question 104

Multiple Choice

(Figure: The Domestic Interest Rate) Using the graph, if the dollar rate of interest increases from 5% to 7%, what result will occur in the short run?

• A) Expectations of future exchange rates will change.
• B) U.S. real GDP will fall and the dollar will also fall.
• C) The spot rate for dollars will appreciate to $1.10.
• D) The nominal interest rate on the euro will decrease.

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