An exchange rate shock generally causes a country's:
A) real GDP to rise and the price level to rise.
B) real GDP to fall and the price level to rise.
C) real GDP to rise and the price level to fall.
D) real GDP to fall and the price level to fall.
E) real GDP to be more stable.

Question

Quizplus · Accepted Answer

An exchange rate shock can lead to a country's real GDP falling due to decreased competitiveness abroad and increased import prices, while the price level rises due to the higher cost of imports.

An Exchange Rate Shock Generally Causes a Country's