According to the monetary model of exchange rates, a fall in national real income will lead to:
A) a depreciation of the domestic currency
B) an appreciation of the domestic currency
C) a depreciation of the foreign currency
D) no change in the value of the domestic currency

Question

Quizplus · Accepted Answer

A fall in national real income will lead to a decrease in the demand for domestic goods and services, which will in turn lead to a decrease in the demand for the domestic currency. This will cause the domestic currency to depreciate.

According to the Monetary Model of Exchange Rates, a Fall