3. The following questions refer to the relationship between interest rates and exchange rates. a. Suppose that interest rates in the US @ relative to
3. The following questions refer to the relationship between interest rates and exchange rates. a. Suppose that interest rates in the US @ relative to rates in Europe. i. What is the predicted effect on the demand for US savings instruments? What explains this prediction? ii. What is the predicted effect on the demand for the US dollar? What explains this prediction? iii. Is the US dollar expected to appreciate or depreciate? Show the result in the diagram below
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