Which of the following will cause a real depreciation?
A) An increase in P*.
B) A decrease in E.
C) A decrease in P.
D) All of the above.
E) Both A and B.

Name: Which of the following will cause a real depreciation? A) An increase in P*. B) A decrease in E. C) A decrease in P. D) All of the above. E) Both A and B.
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Question

Quizplus · Accepted Answer

A real depreciation occurs when the domestic price level (P) decreases relative to the foreign price level (P*). An increase in P* or a decrease in E will both cause a real depreciation.

Which of the Following Will Cause a Real Depreciation