If the Canadian real exchange rate appreciates, what will most likely happen?
A) Net exports increase, and net capital outflow decreases.
B) Net exports decrease, and net capital outflow increases.
C) Net exports and net capital outflow both increase.
D) Net exports and net capital outflow both decrease.

Question

Quizplus · Accepted Answer

When the Canadian real exchange rate appreciates, Canadian goods become more expensive for foreign buyers, leading to a decrease in net exports. Simultaneously, the higher exchange rate makes foreign investments more attractive, reducing net capital outflow.

If the Canadian Real Exchange Rate Appreciates, What Will Most