Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of U.S. goods buys)?
A)an increase in the number of Kenyan shillings that can be purchased with a dollar
B)an increase in the price of U.S. baskets of goods
C)a decrease in the price in Kenyan shillings of Kenyan goods
D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in the number of Kenyan shillings per dollar, an increase in the price of U.S. goods, or a decrease in the price of Kenyan goods all increase the real exchange rate, making U.S. goods relatively more expensive compared to Kenyan goods.

Suppose That the Real Exchange Rate Between the United States