Question
Why do higher domestic interest rates tend to appreciate the domestic currency?
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Answer
They attract foreign capital inflows seeking higher risk-adjusted returns.
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Question
How do capital controls fit the antiglobalization side of the globalization-antiglobalization trade-off?
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Answer
They restrict cross-border capital mobility to limit foreign investment or flows.
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Question
In a country with a USD peg and free capital mobility, what happens if the central bank cuts interest rates?
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Answer
Capital flows out, pressuring the peg and draining USD reserves.
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Question
What does a balanced budget multiplier of 1 imply for equal increases in G and T?
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Answer
GDP rises by the amount of the increase in G.
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