Which of the following would both make a country's real exchange rate rise?
A)its budget deficit increases and bonds issued in the country become riskier
B)bonds issued in that country become riskier and it imposes an import quota
C)it imposes an import quota and the budget deficit increases
D)None of the above are correct.

Question

Quizplus · Accepted Answer

An import quota can increase the demand for domestic currency, and a budget deficit can lead to higher interest rates, both of which can cause the real exchange rate to rise.

Which of the Following Would Both Make a Country's Real