When the real exchange rate rises:
A) exports will decrease but imports will be unaffected.
B) imports will decrease but exports will be unaffected.
C) exports will increase and imports will decrease.
D) exports will decrease and imports will increase.

Question

Quizplus · Accepted Answer

When the real exchange rate rises, it means that foreign currencies are cheaper relative to the domestic currency. This makes domestic goods more expensive for foreigners, leading to a decrease in exports. Conversely, foreign goods become cheaper for domestic consumers, leading to an increase in imports.

When the Real Exchange Rate Rises