| When the real exchange rate for the dollar appreciates, U.S. goods become |
| | | A. more expensive relative to foreign goods, which makes exports fall and imports rise. | | | B. less expensive relative to foreign goods, which makes exports rise and imports fall. | | | C. more expensive relative to foreign goods, which makes exports rise and imports fall. | | | D. less expensive relative to foreign goods, which makes exports fall and imports rise. | |
| When the real exchange rate for the dollar appreciates, U.S. goods become |
| | | A. more expensive relative to foreign goods, which makes exports fall and imports rise. | | | B. less expensive relative to foreign goods, which makes exports rise and imports fall. | | | C. more expensive relative to foreign goods, which makes exports rise and imports fall. | | | D. less expensive relative to foreign goods, which makes exports fall and imports rise. | |
Appreciation of US dollar implies increase in the value paid for it in comparision to other currencies. This also implies that more money (other currencies) has to be paid now to purchase US products. Goods become costly and so will opt for imports and exports would fall.
Therefore, the correct answer is A.
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