In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

Question

Quizplus · Accepted Answer

In the open-economy macroeconomic model, a surplus in the foreign exchange market indicates that the quantity of domestic currency supplied exceeds the quantity demanded. To restore equilibrium, the exchange rate must depreciate, making domestic goods cheaper relative to foreign goods. This depreciation will increase the quantity of desired net exports as domestic goods become more competitive in the international market.

In the Open-Economy Macroeconomic Model, If There Is Currently a Surplus