All other things equal, a depreciation of the U.S. real exchange rate causes:

Question

Quizplus · Accepted Answer

A depreciation of the U.S. real exchange rate means that the value of the U.S. dollar has decreased in relation to other currencies. This makes U.S. exports relatively cheaper and more attractive to foreigners, leading to an increase in exports. At the same time, it makes foreign goods relatively more expensive for U.S. consumers, leading to a decrease in imports. Therefore, option B is the correct answer.

All Other Things Equal, a Depreciation of the U