How Does an Increase in the Relative Price of a Country's

question 222

Multiple Choice

How does an increase in the relative price of a country's goods in terms of foreign goods, or real exchange rate, affect its balance of trade?

• A)An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade.
• B)An increase in the real exchange rate reduces imports, raises exports, and reduces the balance of trade.
• C)An increase in the real exchange rate reduces imports, raises exports, and increases the balance of trade.
• D)An increase in the real exchange rate raises imports, reduces exports, and increases the balance of trade.
• E)An increase in the real exchange rate raises imports, raises exports, and increases the balance of trade.

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