Suppose the Real Exchange Rate Is Such That the Market

question 35

Multiple Choice

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus.This surplus will lead to

• A)an appreciation of the dollar,an increase in U.S.net exports,and so an increase in the quantity of dollars demanded in the foreign exchange market.
• B)an appreciation of the dollar,a decrease in U.S.net exports,and so a decrease in the quantity of dollars demanded in the foreign exchange market.
• C)a depreciation of the dollar,an increase in U.S.net exports,and so an increase in the quantity of dollars demanded in the foreign exchange market.
• D)a depreciation of the dollar,a decrease in U.S.net exports,and so a decrease in the quantity of dollars demanded in the foreign exchange market.

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Definitions:

Factor of Production

An economic resource used in the production of goods and services, including labor, capital, land, and entrepreneurship.

Market

A group of buyers and sellers of a particular good or service.

Diminishing

A principle often referring to diminishing returns, where additional inputs result in progressively smaller increases in output.

Marginal Product

The additional output resulting from the use of one more unit of a production input, holding all other inputs constant.