Question

If the U.S. nominal exchange rate declines and prices rise faster abroad than in the United States, the real exchange rate: a. decreases, and net exports for the United States decrease. b. decreases, and net exports for the United States increase. c. increases, and net exports for the United States decrease. d. increases, and net exports for the United States increase.

Answer 1

Answer:

b

Explanation:

nominal exchange rate is the rate at which one currency is exchanged for another currency. this rate included the inflation rate

real exchange rate is exchange rate adjusted for inflation

net export = export - import

if the nominal exchange rate declines it means that the value of the us dollar declines

if inflation is higher abroad than in the US, the value of the US dollar ought to increase. Because it the exchange rate decreases, it means that real exchange rate has also decreased.

Foriegn goods would become more expensive and export would increase