Question

When interest rates fall in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.

Answer 1

The correct answer is falls; less; rise.

Step-by-step explanation:

Higher interest attracts more money from abroad. Lower interest rate means that the flow of money from abroad will also be lower. This means low demand for dollars. This causes the value of dollars to fall.

As the exchange rate falls, the domestic gods will become cheaper or less expensive for foreign consumers. This will increase the foreign demand for goods and services. Consequently, net exports will increase.