Depreciation of the real exchange rate:
A) makes U.S. exports more expensive to foreigners.
B) makes U.S. exports less expensive to foreigners.
C) means a basket of U.S. goods would exchange for more foreign goods.
D) means an appreciation of the nominal exchange rate.

Question

Quizplus · Accepted Answer

Depreciation of the real exchange rate means that the value of the currency has decreased in relation to foreign currencies. Therefore, U.S. exports become cheaper for foreigners, making them relatively more affordable and potentially increasing demand for them.

Depreciation of the Real Exchange Rate