If the real exchange rate depreciates from 1 Japanese good per Canadian good to 0.5 Japanese good per Canadian good, then Canadian exports _____, and Canadian imports _____.
A)increase; increase
B)decrease; decrease
C)increase; decrease
D)decrease; increase

Question

Quizplus · Accepted Answer

A depreciation of the real exchange rate makes Canadian goods cheaper relative to Japanese goods, leading to an increase in Canadian exports. At the same time, it makes Japanese goods more expensive relative to Canadian goods, leading to a decrease in Canadian imports.

If the Real Exchange Rate Depreciates from 1 Japanese Good