increase in the real exchange rate will

Question

Quizplus · Accepted Answer

An increase in the real exchange rate will make a country's exports more expensive, making them less competitive in international trade (option C), and it will lower the cost of foreign goods (option D). These two options form a correct answer only if E is chosen. However, an increase in the real exchange rate will make imports cheaper, which could lead to consumers and firms purchasing more foreign goods rather than domestic goods, thereby lowering national income (option B). Thus, the correct answer is E.

Increase in the Real Exchange Rate Will