Question
In a flexible exchange rate system, if domestic interest
rate increases, then which of the following is true:Solution
In a flexible exchange rate system, if domestic interest rate increases, it is going to lead to capital inflow in the country because rate of return has increased. As a result, there is capital account surplus. Also, this will increase AD and output which means import demand increases. Therefore, current account worsens.
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1. Union Powers Committee
2. States Co...
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