In the open-economy macroeconomic model,a higher U.S.real exchange rate makes
A)U.S.goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
B)U.S.goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
C)foreign goods more expensive relative to U.S.goods and reduces the quantity of dollars supplied.
D)foreign goods more expensive relative to U.S.goods and reduces the quantity of dollars demanded.

Question

Quizplus · Accepted Answer

A higher U.S. real exchange rate means that U.S. goods become relatively more expensive compared to foreign goods. As a result, the quantity of U.S. goods demanded decreases, which in turn decreases the demand for U.S. dollars. Therefore, a higher U.S. real exchange rate reduces the quantity of dollars demanded (not supplied).

In the Open-Economy Macroeconomic Model,a Higher U