Economics question help.. multiple choice....

Question

lower domestic interest rates encourage

a) US investors to invest abroad

b) foreign investors to withdraw their funds from US investment

c) US investors to withdraw their funds from foreign investment

d) both (a) and (b)

e both (b) and (c)

if the US demand for German goods increases, then

a) the US current account deficit with Germany will improve

b) Germany will experience currency devaluation

c) US dollar will appreciate in value against the euro

d) the euro will depreciate in value against the US dollar

e) the euro will appreciate in value against the US dollar

Answer 1

1:

d) both (a) and (b)

Capital will seek higher profits (higher interest rates) outside US, and it doesn't matter to whom it belongs to (foreigners or US residents)

2:

e) the euro will appreciate in value against the US dollar

Higher demand for German goods will mean higher demand for euro on currency exchange market (euro-zone currency, thus German) to purchase these goods, apparently US economy will supply US dollars to currency exchange market. Thus dollar will tend to relatively depreciate (due to higher supply) and euro will tend to appreciate (due to higher demand)