1. Suppose interest rates rise in the United States, but they don\'t rise in oth
ID: 1161251 • Letter: 1
Question
1. Suppose interest rates rise in the United States, but they don't rise in other nations. What is the impact on the flow of financial capital, the value of the dollar, and U.S. net exports (based on the changing value of the dollar)?
Capital Flow / Value of the U.S. dollar / Net Exports
Inflow / Appreciate / Increase
Inflow / Appreciate / Decrease
Inflow / Depreciate / Increase
Outflow / Depreciate / Increase
Outflow / Appreciate / Decrease
2. If the supply of the Czech Republic koruna decreases relative to the U.S. dollar, then the U.S. dollar will appreciate. the U.S. dollar will depreciate. the quantity demanded of Czech koruna would increase. the quantity demanded of U.S. dollars would increase. the Czech koruna will depreciate.Explanation / Answer
1)
Right answer is " Inflow / Appreciate / Decrease"
Inflow of capital is incentivised by the higher interest rate. inflow of capital will lead to appreciation of currency. Rise in value of currency will make export less competitive, thus net export will fall.
2)
right answer is " US dollar will depreciate"
Exchange rate is determined through the demand and supply forces, hence when supply falls, automatically, market forces will depreciate value of US dollar.
3)
Right answer is " domestic prices would increase"
imposition of tariffs on imported goods would reduce supply cheaper goods. Hence, prices shall witness rise.
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