Question

All other things equal, a depreciation of the U.S. real exchange rate causes consumers to buy ________ domestic goods and ________ foreign goods.

fewer; fewer

fewer; more

more; more

more; fewer

Answer 1

A depreciation of US real exchange rate implies that now foreign goods and services have become costlier as compared to domestic goods and services.

Due to this, exports will rise and imports will fall. In other words, US consumers will buy more of domestic goods and less of foreign goods.

Therefore, the correct answer is:

All other things equal, a depreciation of the U.S. real exchange rate causes consumers to buy more domestic goods and fewer foreign goods.

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Answer) more; fewer