How Does an Increase in the Real Exchange Rate Affect

question 60

Multiple Choice

How does an increase in the real exchange rate affect exports and imports?

• A) exports increase; imports decrease
• B) exports decrease; imports increase
• C) exports increase; imports change ambiguously
• D) exports change ambiguously; imports decrease
• E) exports increase; imports are constant

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Definitions:

Efficient Markets Hypothesis

The theory that all available information is already reflected in asset prices, implying that stocks always trade at their fair value, making it impossible to consistently achieve higher-than-average returns.

Efficient Markets Hypothesis

The theory that all available information is already reflected in stock prices, thus making it impossible to consistently achieve higher returns.

Return And Risk

Concepts in finance and investing that denote the potential profit or loss and the uncertainty associated with an investment.

Asset Bubble

A situation in financial markets where the price of an asset inflates to levels far beyond its intrinsic value, leading to an eventual crash.