Question

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy

a. more domestic goods and more foreign goods.
b. fewer domestic goods and more foreign goods.
c. more domestic goods and fewer foreign goods.
d. fewer domestic goods and fewer foreign goods.

Answer 1

The correct answer in this case would be option b. given in the answer choices or list.

Step-by-step explanation:

• An appreciation of the real exchange rate of US dollars indicate a relative rise in the value of the US Dollars in comparison to other foreign or international currencies worldwide.
• Now, an appreciation or increase in the value of US dollars would also mean a relative fall in the value of the foreign or international currencies with respect to US Dollars.
• This would ideally make the foreign goods and services more expensive in comparison to the US goods and services thereby, inducing the US consumers or buyers to purchase more of foreign goods and services relative to domestic goods and services.
• Hence,the demand and consumption of foreign goods would increase among US consumers or buyers because of the appreciation of US real exchange rate.