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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Definitions:

Equilibrium Quantity

The amount of products or services that are both provided and sought after at the balance price, where the supply meets the demand.

Rent Controls

Government-imposed rules that limit the amount landlords can charge for renting out their property, aiming to keep housing affordable.

Diagram

A simplified drawing showing the appearance, structure, or workings of something; often used in planning or explaining.

Shortage

A situation in which the demand for a good or service exceeds the supply available at a specific price.