Reference no: EM133707410

Question: Why does the demand curve for dollars in the foreign-currency exchange market slope downward in an open economy? When the value of the domestic currency depreciates, domestic goods become less expensive relative to foreign goods, making domestic goods more attractive to domestic and foreign consumers. A depreciation of the dollar reduces the quantity of dollars demanded in the market for foreign-currency exchange. Net capital outflow equals net exports. A depreciation in the domestic currency causes exports to fall and imports to rise and, therefore, net exports to fall.er real interest rate discourages domestic consumers from buying foreign assets and encourages foreigners to buy domestic assets. A higher real interest rate makes borrowing more expensive. A lower real interest rate discourages investment.