If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______ and U.S. imports ______.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

When the real exchange rate depreciates, it means that Japanese goods have become relatively cheaper compared to U.S. goods. This will lead to an increase in U.S. exports because U.S. goods have become relatively more expensive for Japanese consumers, making them less attractive. At the same time, U.S. imports will decrease as Japanese goods have become relatively cheaper for U.S. consumers, making them more attractive.

If the Real Exchange Rate Depreciates from 1 Japanese Good