For the United States suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent For Japan the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 5 percent the above variables would cause investment funds to flow from ?
Correct answer: A. The United States to Japan causing the dollar to depreciate
- A. The United States to Japan causing the dollar to depreciate
- B. The United States to Japan causing the dollar to appreciate
- C. The Japan to United States, causing the dollar to depreciate
- D. The Japan to United States, causing the dollar to appreciate
Explanation
The real interest rate is about 4% in the United States versus 5% in Japan, so investment funds are attracted to Japan. Selling dollars to buy yen increases dollar supply and causes the dollar to depreciate.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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