If the exchange rate depreciated the price level would _____ and real GDP would ______.
A) rise, fall
B) fall, rise
C) fall, fall
D) rise, rise
E) rise, remain unchanged

Question

Quizplus · Accepted Answer

When the exchange rate depreciates, it means the value of the currency has fallen relative to other currencies. This typically leads to higher prices for imported goods, contributing to an increase in the overall price level (inflation). At the same time, a weaker currency makes exports cheaper and more competitive abroad, potentially increasing demand for domestically produced goods and services, which can lead to an increase in real GDP.

If the Exchange Rate Depreciated the Price Level Would _____