In the open-economy macroeconomic model, if the real exchange rate of the U.S. dollar were above its equilibrium level, the real exchange rate of the U.S. dollar would appreciate.

Question

Quizplus · Accepted Answer

If the real exchange rate of the U.S. dollar were above its equilibrium level, it would mean that the U.S. dollar is overvalued and therefore, its price should decrease to reach equilibrium. This would result in a depreciation of the U.S. dollar, not an appreciation.

In the Open-Economy Macroeconomic Model, If the Real Exchange Rate