In the open-economy macroeconomic model,if there is a surplus in the market for foreign-currency exchange,which of the following will move the market to equilibrium?
A)the real exchange rate depreciates and net exports fall.
B)the real exchange rate depreciates and net exports rise.
C)the real exchange rate appreciates and net exports fall.
D)the real exchange rate appreciates and net exports rise.

Question

Quizplus · Accepted Answer

A surplus in the foreign-currency exchange market means there is more supply than demand for the currency. To reach equilibrium, the real exchange rate must depreciate, making domestic goods cheaper for foreigners, thus increasing net exports.

In the Open-Economy Macroeconomic Model,if There Is a Surplus in the Market