An increase in a country's exchange rate will
A) reduce its net exports.
B) increase its net exports.
C) reduce its imports and increase its exports.
D) leave its net exports unchanged.

Question

Quizplus · Accepted Answer

An increase in a country's exchange rate means that its currency has become more valuable compared to other currencies. This makes exports of that country more expensive for other countries and imports cheaper for people in the domestic economy. As a result, the demand for exports from that country decreases, while the demand for imports increases. This leads to a reduction in net exports.

An Increase in a Country's Exchange Rate Will