The following figure shows the net exports curve for a country:

-Refer to the figure above.When the real exchange rate is above R*,there is a trade surplus.

Question

The following figure shows the net exports curve for a country:
 
-Refer to the figure above.When the real exchange rate is above R*,there is a trade surplus.

Quizplus · Accepted Answer

When the real exchange rate is above R*, it typically indicates that the domestic currency is overvalued, making imports cheaper and exports more expensive on the world market, which can lead to a trade deficit rather than a surplus.

The Following Figure Shows the Net Exports Curve for a Country