Suppose there is a real depreciation of the dollar.Which of the following may have occurred?
A)foreign currency has become more expensive in dollars.
B)foreign goods have become more expensive to Americans.
C)the foreign price level has increased relative to the U.S. price level.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

When the dollar depreciates, it means that it has lost value relative to other currencies. This makes foreign currencies more expensive in dollars (A), which in turn makes foreign goods more expensive to Americans (B), as they have to spend more dollars to buy the same amount of foreign goods. While (C) might not directly result from the depreciation of the dollar, it can be a related effect since a weaker dollar can make imports more expensive, contributing to a relative increase in the foreign price level compared to the U.S. price level. Therefore, all of the statements (A, B, and C) can occur due to a real depreciation of the dollar.

Suppose There Is a Real Depreciation of the Dollar