Question

Other things the same , if the U.S. price level falls, then U.S. residents want to buy a. fewer foreign bonds. The real exchange rate rises. b. fewer foreign bonds. The real exchange rate falls. c. more foreign bonds. The real exchange rate rises. d. more foreign bonds. The real exchange rate falls.

Answer 1

C. More foreign bonds. The real exchange rate rises.

Step-by-step explanation:

When the price level of a commodity falls, a country with a lower price level tend to post a very strong and effective exchange rate system. The implication of this is that when compared with other currencies and/or other economic system, this is more stronger and more of items in other economic system can be obtained.

Now, in the scenario given in the question above, the US price level falling ultimately leads to a currency strenthening and appreciation. Thus, impressive currency gain will be appreciated. Buying more foreign bonds will often yield more and robust economic and competitive advantage.