Krugman's Economics For The Ap® Course
3rd Edition
ISBN: 9781319113278
Author: David Anderson, Margaret Ray
Publisher: Worth Publishers
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Question
Chapter 41, Problem 7MCQ
To determine
The correct option for the effect on the interest rate of country U and Country B.
Expert Solution & Answer
Answer to Problem 7MCQ
Option c is correct.
Explanation of Solution
Explanation for the correct option:
c.
In the long run, there will be changes in country U and country B. In long run, there will be changes and due to interest rate parity among both countries, there will be a decrease in interest rate in country U and an increase in country B. Therefore, option c is correct.
Explanation for incorrect options:
a.
As per the interest rate parity condition, the interest rate of country U and Country B will move in opposite directions. Therefore, option a is the incorrect answer.
b.
The scenario will be different in long run according to interest rate parity. Therefore, option b is incorrect.
d.
The interest rate of country U will decrease but not of Country B. Therefore, option d is incorrect.
e.
There will be a change in interest rates in the long-run for both countries. Therefore, option e is incorrect.
Economics Concept Introduction
Foreign Exchange rate: The rate at which currencies of two different countries are exchanged. In other words, it is the rate at which one currency is exchanged with the other currency.
Chapter 41 Solutions
Krugman's Economics For The Ap® Course
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