Suppose that the nominal exchange rate is 80 yen per dollar,that the price of a basket of goods in the U.S.is $500 and the price of a basket of goods in Japan is 50,000 yen.Suppose that these values change to 100 yen per dollar,$600,and 70,000 yen.Then the real exchange rate would
A)appreciate which by itself would make U.S.net exports fall.
B)appreciate which by itself would make U.S.net exports rise.
C)depreciate which by itself would make U.S.net exports fall.
D)depreciate which by itself would make U.S.net exports rise.

Question

Quizplus · Accepted Answer

The real exchange rate appreciates because the nominal exchange rate increases from 80 to 100 yen per dollar, and the relative price of goods in the U.S. compared to Japan increases. This appreciation makes U.S. goods more expensive relative to Japanese goods, which would typically lead to a fall in U.S. net exports.

Suppose That the Nominal Exchange Rate Is 80 Yen Per