When the real exchange rate for the dollar depreciates,U.S.goods become
A)less expensive relative to foreign goods,which makes exports rise and imports fall.
B)less expensive relative to foreign goods,which makes exports fall and imports rise.
C)more expensive relative to foreign goods,which makes exports rise and imports fall.
D)more expensive relative to foreign goods,which makes exports fall and imports rise.

Question

Quizplus · Accepted Answer

When the real exchange rate for the dollar depreciates, U.S. goods become relatively less expensive compared to foreign goods. This situation makes exports more attractive to foreign buyers and encourages them to purchase more U.S. goods, while making foreign goods relatively more expensive for domestic consumers, which discourages imports. Consequently, exports rise and imports fall, resulting in an improvement in the trade balance.

When the Real Exchange Rate for the Dollar Depreciates,U