An increase in a country's real exchange rate
A) makes imports more affordable
B) causes net exports to rise
C) reduces the balance in the capital account
D) reduces the purchasing power of that country's currency
E) reduces the differential between real and nominal GDP

Question

Quizplus · Accepted Answer

An increase in a country's real exchange rate makes the currency stronger compared to other currencies, thus making imports more affordable because foreign goods and services become cheaper in terms of the domestic currency.

An Increase in a Country's Real Exchange Rate