If the nominal exchange rate does not change,but U.S.prices rise,the real exchange rate has ________,and U.S.imports are likely to ________.
A)increased; rise
B)increased; fall
C)decreased; rise
D)decreased; fall

Question

Quizplus · Accepted Answer

If U.S. prices rise, the purchasing power of the U.S. dollar decreases, which means that the real exchange rate has decreased. This means that U.S. imports are likely to rise, as foreign goods now appear relatively cheaper compared to domestically produced goods.

If the Nominal Exchange Rate Does Not Change,but U