If the world thought that many banks in a certain country were at or near the point of bankruptcy, then that country's real exchange rate
A)and net exports would rise.
B)would rise and net exports would fall.
C)would fall and net exports would rise.
D)and net exports would fall.

Question

Quizplus · Accepted Answer

If people believe that many banks in a country are close to bankruptcy, they will likely lose confidence in that country's economy, causing investors to withdraw money, leading to a decline in the country's currency value. A reduction in the value of the currency will result in an increase in exports, as goods will appear less expensive, leading to an increase in net exports. Therefore, the correct option is C, which states that the country's real exchange rate would decline, and net exports would rise.

If the World Thought That Many Banks in a Certain