Suppose that the real exchange rate between Canada and Tanzania is defined in terms of baskets of goods. What will increase the real exchange rate (that is, increase the number of baskets of Tanzanian goods a basket of Canadian goods buys)?
A) an increase in the number of Tanzanian shillings that can be purchased with a dollar
B) an increase in the price in Canadian dollars of Tanzanian goods
C) an increase in the price in Tanzanian shillings of Tanzanian goods
D) a decrease in the number of Tanzanian shillings that can be purchased with a dollar

Question

Quizplus · Accepted Answer

An increase in the number of Tanzanian shillings that can be purchased with a dollar means that the Canadian dollar has appreciated relative to the Tanzanian shilling, making Canadian goods relatively cheaper and increasing the real exchange rate.

Suppose That the Real Exchange Rate Between Canada and Tanzania