AP Macroeconomics Question 240: Answer and Explanation

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Question: 240

7. If interest rates rise relatively more in country A than in country B, then the value of country A's currency will

  • A. appreciate.
  • B. depreciate.
  • C. remain unchanged.
  • D. change indeterminately.
  • E. depreciate by the difference in interest rates.

Correct Answer: A


(A) When interest rates rise in country A, people from country B will want to place loans there. People from country B will need to obtain the currency of country A in order to do this. The demand for country A's currency rises. This causes it to appreciate.