Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?
A)the U.S. government budget deficit increases
B)capital flight from the United States
C)the U.S. imposes import quotas
D)None of the above is correct.

Question

Quizplus · Accepted Answer

Capital flight from the United States would lead to a decrease in demand for dollars in the foreign exchange market, causing the real exchange rate to depreciate. A) an increase in the U.S. government budget deficit may lead to a decrease in confidence in the U.S. economy and could put pressure on the exchange rate, but it is not a guaranteed cause for depreciation. C) Import quotas may impact the trade balance but may not necessarily impact the exchange rate directly.

Which of the Following Would Cause the Real Exchange Rate