Suppose that the real exchange rate between the United States and South Korea 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 South Korean goods a basket of U.S goods buys)?
A)a decrease in the quantity of South Korean currency that can be purchased with a dollar
B)a decrease in the price of U.S.baskets of goods
C)a decrease in the price in South Korean currency of South Korean goods.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

If the price of South Korean goods decreases in South Korean currency, then a basket of US goods will be able to purchase a greater number of South Korean baskets of goods, increasing the real exchange rate. Option A refers to an increase in the exchange rate, which would decrease the real exchange rate. Option B refers to a decrease in the price of US goods, which would increase the demand for US goods, but not necessarily affect the real exchange rate. Therefore, option C is the only correct answer.

Suppose That the Real Exchange Rate Between the United States