Would an increase in real GDP and real income in the US othe

Would an increase in real GDP and real income in the U.S, other things being equal, cause the dollar to depreciate or appreciate in the foreign exchange market?

Solution

An increase in real GDP and real income in US would appreciate the dollar in the foreign exchange market. Rise in real GDP and income leads to more productivity which reduces the prices. This reduction in prices will bring down the inflation rate as well as exchange rate which means local currency is appreciating.