An appreciation of the U.S.real exchange rate induces U.S.consumers to buy
A)fewer domestic goods and fewer foreign goods.
B)more domestic goods and fewer foreign goods.
C)fewer domestic goods and more foreign goods.
D)more domestic goods and more foreign goods.

Question

Quizplus · Accepted Answer

When the U.S. real exchange rate appreciates, foreign goods become relatively cheaper compared to domestic goods, therefore U.S. consumers are more likely to purchase more foreign goods and fewer domestic goods. This leads to a decrease in demand for domestic goods and an increase in demand for foreign goods.

An Appreciation of the U