Question

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

Answer 1

Answer:

(b) U.S. residents want to buy more foreign bonds. The real exchange rate falls.

Explanation:

A fall in the exchange rate is known as a depreciation in the exchange rate, means the currency is worth less compared to other countries. For example, a depreciation of the dollar makes US exports more competitive but raises the cost of importing goods into the US. As a results, residents will want to buy more foreign goods other than the country own produced goods. This will results in a shift in a demand or supply curve which  occurs when a good's quantity demanded or supplied changes even though price remains the same.