Suppose North American and European Interest Rates Have Been the Same

Multiple Choice

Suppose North American and European interest rates have been the same. A sharp,permanent increase in US interest rates to levels above those of America's trade partners can be expected to cause

A) the long term nominal value of the dollar to be lower than it otherwise would be
B) an immediate decline in the spot market value of the dollar
C) gradual appreciation of the dollar over many years, until it reaches its new long run value
D) an immediate jump in the dollar's spot market value, followed by subsequent depreciation
E) no change in the real, long term exchange rates