A real appreciation of a country's currency generally causes:
A) an increase in the production of tradable goods and a reduction in the production of nontradable goods in the economy.
B) a decrease in the production of tradable goods and an increase in the production of nontradable goods in the economy.
C) an increase in the production of both tradable goods and nontradable goods in the economy.
D) a decrease in the production of both tradable goods and nontradable goods in the economy.
E) no change in the production of goods.

Question

Quizplus · Accepted Answer

A real appreciation of a country's currency makes its exports more expensive and imports cheaper. This typically leads to a decrease in the production of tradable goods (since they're less competitive internationally) and an increase in the production of nontradable goods (which aren't directly affected by exchange rates).

A Real Appreciation of a Country's Currency Generally Causes