(Figure: the Domestic Interest Rate) Using the Graph, If the Dollar

Multiple Choice

(Figure: The Domestic Interest Rate) Using the graph, if the dollar rate of interest increases from 5% to 7%, what result will occur in the short run?

A) Expectations of future exchange rates will change.
B) U.S. real GDP will fall and the dollar will also fall.
C) The spot rate for dollars will appreciate to $1.10.
D) The nominal interest rate on the euro will decrease.