Suppose there is a real appreciation in favour of Australia. Which of the following must have occurred?
A) Foreign currency has become more expensive in Australian dollars.
B) The foreign price level has increased relative to the Australian price level.
C) Foreign goods have become more expensive to Australians.
D) Foreign goods have become less expensive to Australians.
E) Foreign currency has become less expensive in Australian dollars.

Question

Quizplus · Accepted Answer

Real appreciation means that the domestic currency has increased in value relative to foreign currencies. This means that foreign goods have become less expensive to Australians, so the answer is D. A is not necessarily true as foreign currency could have remained the same, and E is the opposite of what would happen in a real appreciation. B is not the same thing as real appreciation and C is not necessarily true.

Suppose There Is a Real Appreciation in Favour of Australia