Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods.Other things the same,which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of U.S.goods buys)?
A)an increase in the number of Kenyan shillings that can be purchased with a dollar
B)an increase in the price of U.S.goods
C)a decrease in the price in Kenyan shillings of Kenyan goods
D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in the number of Kenyan shillings that can be purchased with a dollar (A) will increase the real exchange rate because it will make Kenyan goods cheaper relative to U.S. goods. An increase in the price of U.S. goods (B) will also increase the real exchange rate because it will make U.S. goods more expensive relative to Kenyan goods. A decrease in the price in Kenyan shillings of Kenyan goods (C) will also increase the real exchange rate because it will make Kenyan goods cheaper relative to U.S. goods.

Suppose That the Real Exchange Rate Between the United States