Question

In the long run, with variable real exchange rates, if American goods become more attractive relative to European goods, the dollar will experience a real and a nominal appreciation; appreciation appreciation; depreciation depreciation; appreciation depreciation; depreciation

Answer 1

The correct answer is Option D " depreciation, depreciaiton"

The American goods become more attractive in this case the currency shows the depreciation because it leads to cheaper american goods in comparison to other countries. So, We have given the real exchange rate is variable so this will result in real exchange rate to depreciate and also the nominal exchange rate will show depreciation because the inflation will remain constant/