If the real exchange rate were above the equilibrium level, the currency would:

Question

Quizplus · Accepted Answer

If the real exchange rate is above the equilibrium level, it means that the currency is overvalued and will become relatively more expensive compared to other currencies. This will make exports from the country more expensive, leading to a decrease in demand for the country's goods and services from other countries, thereby decreasing the demand for the country's currency. As a result, the currency will depreciate until it reaches the equilibrium level.

If the Real Exchange Rate Were Above the Equilibrium Level