Assuming Canada is the "domestic" country, if the real exchange rate between Canada and France increases from 1.5 to 1.8
A)the prices of Canadian goods and services have increased by 53% relative to France.
B)the prices of Canadian goods and services have increased by 3% relative to France.
C)the prices of Canadian goods and services have decreased by 16% relative to France.
D)the prices of Canadian goods and services have increased by 20% relative to France.
E)the prices of Canadian goods and services have decreased by 53% relative to France.

Question

Quizplus · Accepted Answer

An increase in the real exchange rate means that the domestic currency (in this case, the Canadian dollar) has appreciated relative to the foreign currency (in this case, the euro, as France is a member of the eurozone). This means that it now takes fewer Canadian dollars to purchase the same amount of euros as before. As a result, Canadian goods and services become relatively more expensive to French consumers, who now have to pay more euros to obtain the same amount of Canadian dollars needed to make the purchase. Therefore, the correct answer is D, as Canadian goods and services have become 20% more expensive relative to France (1.8/1.5 = 1.2 or a 20% increase).

Assuming Canada Is the "Domestic" Country, If the Real Exchange