If the price level rises in the United States but not in foreign nations and the current exchange rate does not change, the expected future exchange rate
A) falls.
B) rises.
C) stays the same.
D) You canʹt tell from the given information.

Question

Quizplus · Accepted Answer

If the price level rises in the United States but not in foreign nations, then the real exchange rate (adjusted for inflation) will decrease, making U.S. exports more expensive and less competitive in foreign markets. This will lead to a decrease in exports and an increase in imports, causing a higher demand for foreign currency and thus causing the expected future exchange rate to fall.

If the Price Level Rises in the United States but Not