In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following results from a higher real exchange rate?
A) It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
B) It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
C) It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars supplied.
D) It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars demanded.

Question

Quizplus · Accepted Answer

A higher real exchange rate makes Canadian goods more expensive relative to foreign goods. As a result, foreign goods become relatively cheaper, causing a decrease in the quantity of Canadian dollars demanded in the market for foreign-currency exchange.

In the Market for Foreign-Currency Exchange in the Open-Economy Macroeconomic