Country currency real exchange rate

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Reference no: EM131164150

Other things equal, how would you expect the following shifts to affect the home country currency’s real exchange rate against foreign currencies?

a) Foreign residents shift their demand toward their own good and away from the home country’s exports.

b) Due to productivity improvement, the home country has an increase in output of a product for which it already has a 60% market share in the world.

Use diagrams that have real exchange rate in the vertical axis to help explain your answers in a) and b). In each case you should note whether there is a real depreciation or real appreciation of the domestic currency against the foreign currencies.

Reference no: EM131164150

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