When the exchange rate increases (e.g., when the dollar appreciates),
A)the dollar price of foreign goods becomes higher while the foreign price of U.S. goods becomes lower.
B)the dollar price of foreign goods becomes higher and the foreign price of U.S. goods becomes higher.
C)the dollar price of foreign goods becomes lower while the foreign price of U.S. goods becomes higher.
D)Both a and c are correct.

Question

Quizplus · Accepted Answer

When the exchange rate increases (i.e., the dollar appreciates), it means that each dollar can buy more foreign currency. Consequently, the dollar price of foreign goods becomes lower because you need fewer dollars to buy the same amount of foreign goods. Conversely, the foreign price of U.S. goods becomes higher because it now takes more of the foreign currency to buy the same amount of U.S. goods.

When the Exchange Rate Increases (E