If the domestic supply of goods and services is rising at a faster rate than the domestic demand for goods and services then the real exchange rate would tend to depreciate.

Question

Quizplus · Accepted Answer

If the domestic supply of goods and services is rising at a faster rate than the domestic demand, it typically leads to a surplus of goods and services. This can make the country's exports more competitive internationally, potentially appreciating the real exchange rate as the country's goods become more attractive to foreign buyers, increasing demand for the domestic currency.

If the Domestic Supply of Goods and Services Is Rising