Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 32 - Part XI - A Macroeconomic Theory of the Open Economy - Questions for Review - Page 702: 3

Answer

With more American-made clothes being purchased, imports are decreased, and net exports would increase for any real exchange rate. This shifts the demand curve in the foreign exchange market to shift to the right.

Work Step by Step

The shift in the demand curve would increase the real exchange rate and doesn’t affect the trade balance. Since the real exchange rate would increase, the auto industry would import more vehicles. Fewer imports would be purchased by the textile industry.
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