6.06

If the real interest rate is 5 percent in the United States and 8 percent in Canada, what will happen over time to the current and financial/capital accounts in the United States?

The financial/capital account will have a deficit, and the current account will have a surplus.

Assume a country has an open economy. If the country's central bank pursues an aggressive expansionary policy, what will happen to its net financial capital inflows and currency in the short run?

NOT- Its net financial capital inflows will increase, and its currency will appreciate. /Its net financial capital inflows will increase, and its currency will depreciate./Its net financial capital inflows will decrease, and its currency will appreciate.

Which of the following could cause a country's real interest rate to increase and its currency to appreciate?

Deficit spending

A central bank seeking to appreciate its currency could do which of the following?

Increase interest rates

Assume the change shown in the graph was due to an increase in U.S. government spending. What would be the impact on the interest rates, the financial capital flows into the United States, and the value of U.S. currency, given the change in the interest rate?

Interest rates: Increase; Financial capital inflows: increase; US dollar value: appreciates