Other things the same, in the open-economy macroeconomic model, if the real exchange rate rises, the
A)demand for dollars shifts left.
B)demand for dollars shifts right.
C)quantity of dollars demanded falls.
D)quantity of dollars demanded rises.

Question

Quizplus · Accepted Answer

When the real exchange rate rises, foreign goods become relatively cheaper than domestic goods, leading to an increase in imports and a decrease in exports. This results in a decrease in the quantity of foreign currency needed to purchase domestic goods, hence the quantity of dollars demanded falls.

Other Things the Same, in the Open-Economy Macroeconomic Model, If