If a real exchange rate depreciation occurs, which of the following results?
A) It takes more home goods to purchase the same quantity of foreign goods.
B) It takes fewer home goods to purchase the same quantity of foreign goods.
C) The nominal exchange rate has risen as well.
D) The nominal exchange rate has fallen.

Question

Quizplus · Accepted Answer

A real exchange rate depreciation means that the home currency has lost value relative to a foreign currency, implying that more home goods are needed to purchase the same quantity of foreign goods.

If a Real Exchange Rate Depreciation Occurs, Which of the Following