The equilibrium real exchange rate will rise
A)if there is a rise in domestic income.
B)if there is a rise in foreign interest rates.
C)if there is a rise in foreign income.
D)if there is a shift in demand away from the home good.

Question

Quizplus · Accepted Answer

A rise in foreign income increases demand for domestic goods, leading to an appreciation of the domestic currency, thus raising the equilibrium real exchange rate.

The Equilibrium Real Exchange Rate Will Rise