Under the flexible exchange rate,an increase in the foreign price level leads to a domestic currency __________.
A) appreciation
B) depreciation
C) devaluation
D) overshooting

Question

Quizplus · Accepted Answer

An increase in the foreign price level under a flexible exchange rate system makes domestic goods cheaper relative to foreign goods. This increases demand for domestic goods, leading to an appreciation of the domestic currency as more foreign buyers convert their currency to the domestic currency to purchase goods.

Under the Flexible Exchange Rate,an Increase in the Foreign Price