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Macroeconomics

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Foreign Exchange and Real Interest Rates

MACRO-XW6ROO

Consider the markets for dollars and Euros.

Following an increase in the real rate of interest in the United States, which of the following will occur on the foreign exchange market?

A

An increase in the supply of dollars and a decrease in the demand for dollars.

B

An increase in the demand for Euros and an increase in the supply of dollars.

C

An increase in the demand for dollars and a decrease in the supply of Euros.

D

An increase in the demand for dollars and an increase in the supply of Euros.