Question

“An increase in domestic relative to foreign nominal interest rates will lead to a domestic currency appreciation in some, but not all, of the following three models: (i) the flexible price monetary model (ii) the open-economy IS-LM model and (iii) the Dornbusch overshooting model”.

Answer 1

An increase in domestic relative to foreign nominal interest rates will lead to a domestic currency appreciation in such models as the flexible price monetary model and the open-economy IS-LM model, but not in the Dornbusch overshooting model.