The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports.
A) more; greater
B) more; smaller
C) less; greater
D) less; smaller

Question

Quizplus · Accepted Answer

A lower real exchange rate means that domestic goods are relatively less expensive compared to foreign goods, while the demand for net exports increases. This is because foreign buyers can purchase more of the relatively cheaper domestic goods, increasing their demand, while domestic consumers may switch to purchasing relatively cheaper foreign goods, decreasing demand for domestic goods.

The Lower the Real Exchange Rate Is, the ______ Expensive