If the U.S. real exchange rate increases, U.S. exports will ________ and U.S. imports will ________.

Question

Quizplus · Accepted Answer

An increase in the U.S. real exchange rate makes U.S. exports more expensive for foreign consumers, decreasing their demand for U.S. goods and leading to a fall in U.S. exports. At the same time, U.S. imports become cheaper for U.S. consumers, increasing their demand for foreign goods and leading to a rise in U.S. imports. Therefore, the best choice is B: U.S. exports will fall and U.S. imports will rise.

If the US Real Exchange Rate Increases, U