In the open-economy macroeconomic model,as the exchange rate rises,
A)desired net exports fall,so the quantity of dollars supplied rise.
B)desired net exports fall,so the quantity of dollars demanded falls.
C)desired net exports rise ,so the quantity of dollars supplied falls.
D)desired net exports rise,so the quantity of dollars demanded rises.

Question

Quizplus · Accepted Answer

As the exchange rate rises, foreign goods become relatively more expensive for domestic consumers and domestic goods become relatively cheaper for foreign consumers. This leads to a decrease in desired net exports (exports minus imports) as domestic consumers buy fewer foreign goods and foreign consumers buy more domestic goods. As a result, the demand for dollars decreases because fewer dollars are needed to finance these reduced net exports. Therefore, the correct choice is B, as the quantity of dollars demanded falls.

In the Open-Economy Macroeconomic Model,as the Exchange Rate Rises