If for some reason Americans desired to increase their purchases of foreign assets, then other things the same
A)both the real exchange rate and the quantity of dollars exchanged in the market for foreign currency would fall.
B)both the real exchange rate and the quantity of dollars exchanged in the market for foreign currency would rise.
C)the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign currency would fall.
D)the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign currency would rise.

Question

Quizplus · Accepted Answer

When Americans increase their purchases of foreign assets, they need more foreign currency. This demand increases the quantity of dollars exchanged in the market for foreign currency as they sell dollars to buy foreign currency. The real exchange rate falls because the dollar becomes less valuable relative to foreign currencies.

If for Some Reason Americans Desired to Increase Their Purchases