Exports will decrease when there is

Question

Quizplus · Accepted Answer

An increase in the real exchange rate leads to an increase in the relative price of domestic goods, making them more expensive for foreign buyers. This reduces demand for domestic goods and hence exports. An increase in domestic output (B) may lead to an increase in exports if the export demand is also increasing, but in general, it is not necessarily true that domestic output and exports move in the same direction. An increase in foreign output (C) may lead to an increase in imports as foreign countries have more goods to sell, but it does not necessarily affect exports. Therefore, the correct answer is A.

Exports Will Decrease When There Is