If the exchange rate is defined as the price of the foreign currency in terms of the domestic currency, an increase in the exchange rate:
A)increases domestic demand for foreign goods.
B)makes domestic goods cheaper in the foreign markets.
C)lowers net exports.
D)lowers aggregate expenditure on domestic goods.
E)increases the domestic country's external debt burden.

Question

Quizplus · Accepted Answer

An increase in the exchange rate means that the domestic currency has appreciated in value relative to the foreign currency. This makes domestic goods relatively more expensive in foreign markets and foreign goods relatively cheaper in the domestic market. Therefore, choice B is correct as it states that an increase in the exchange rate makes domestic goods cheaper in foreign markets.

If the Exchange Rate Is Defined as the Price of the Foreign