In 1995, Newt Gingrich, the Speaker of the U

Multiple Choice

In 1995, Newt Gingrich, the Speaker of the U.S. House of Representatives, threatened to send the United States into default on its debt. During the day of this announcement, U.S. interest rates rose and the real exchange rate of the U.S. dollar depreciated. Which of the following changes is consistent with the results of the open-economy macroeconomic model?

A) a fall in U.S. interest rates and an increase in net capital outflow
B) an appreciation of the real exchange rate of the U.S. dollar
C) an increase in U.S. interest rates and a depreciation of the U.S. dollar
D) an appreciation of the U.S. dollar and an increase in U.S. net capital outflow