An increase in the real exchange rate indicates that
A)domestic goods are now relatively cheaper.
B)domestic goods are now relatively more expensive.
C)foreign goods are now relatively cheaper.
D)both B and C

Question

Quizplus · Accepted Answer

An increase in the real exchange rate means that the domestic currency has strengthened relative to foreign currencies. This means that both domestic goods have become relatively more expensive compared to foreign goods (option B), and foreign goods have become relatively cheaper compared to domestic goods (option C).

An Increase in the Real Exchange Rate Indicates That