Suppose there is a decrease in the real exchange rate. Which of the following will occur as a result of this change in the real exchange rate?
A) An increase in net exports.
B) A decrease in exports.
C) A decrease in government spending.
D) A decrease in output.
E) An increase in imports.

Question

Quizplus · Accepted Answer

A decrease in the real exchange rate makes a country's goods cheaper relative to foreign goods, which tends to increase exports and decrease imports, thereby increasing net exports.

Suppose There Is a Decrease in the Real Exchange Rate