If the real exchange rate depreciates from one Japanese good per Canadian good to 0.5 Japanese good per Canadian good,then Canadian exports ______ and Canadian imports ______.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

When the real exchange rate depreciates from one Japanese good per Canadian good to 0.5 Japanese good per Canadian good, it means that Canadian goods have become relatively cheaper for Japanese consumers, while Japanese goods have become relatively more expensive for Canadian consumers. This leads to an increase in Canadian exports as it becomes more advantageous for Japanese consumers to buy Canadian goods, and a decrease in Canadian imports as it becomes less attractive for Canadian consumers to buy Japanese goods. Therefore, the correct answer is C, increase in exports and decrease in imports.

If the Real Exchange Rate Depreciates from One Japanese Good