All other things equal, an appreciation of the U.S. real exchange rate causes consumers to buy _______domestic goods and _______ foreign goods.

Question

Quizplus · Accepted Answer

An appreciation of the U.S. real exchange rate means that the U.S. dollar has become stronger relative to foreign currencies, making foreign goods relatively less expensive for U.S. consumers and domestic goods relatively more expensive. This will lead to a decrease in the quantity of domestic goods demanded and an increase in the quantity of foreign goods demanded. Therefore, choice A) fewer domestic goods and more foreign goods is the correct answer.

All Other Things Equal, an Appreciation of the U