An increase in the domestic interest rate shifts the

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47) An increase in the domestic interest rate shifts the expected return schedule for _____ deposits to the _____ and causes the domestic currency to appreciate. A) domestic; right B) domestic; left C) foreign; right D) foreign; left Answer: A 159 48) A decrease in the domestic interest rate shifts the expected return schedule for _____ deposits to the _____ and causes the domestic currency to depreciate. 49) Which of the following causes a depreciation of the domestic currency? 50) Which of the following causes an appreciation of the domestic currency? 51) When the domestic nominal interest rate rises because of an increase in expected inflation, the expected appreciation of the dollar declines, _____ shifts out more than _____, and the exchange rate declines. A) R F ; R D B) R F ; R F C) R D ; R D D) R D ; R F Answer: A 52) When an increase in the money supply causes the exchange rate to fall by more in the short run than it does in the long run, it is called 160
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53) In the long run, a one-time percentage increase in the money supply is matched by the same one-time percentage rise in the price level, 54) Money neutrality means that in the long run the domestic interest rate and R D remain unchanged, implying that the fall in the exchange rate is greater in the _____ run than in the _____ run, a phenomenon called exchange rate overshooting. 55) A lower domestic money supply causes the domestic currency to A) depreciate in the short run. B) depreciate in the long run. C) appreciate in the short run. D) do both (A) and (B) of the above. E) do both (B) and (C) of the above. Answer: C
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