How Does an Increase in the Relative Price of a Country's

Multiple Choice

How does an increase in the relative price of a country's goods in terms of foreign goods, or real exchange rate, affect its balance of trade?

A) An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade.
B) An increase in the real exchange rate reduces imports, raises exports, and reduces the balance of trade.
C) An increase in the real exchange rate reduces imports, raises exports, and increases the balance of trade.
D) An increase in the real exchange rate raises imports, reduces exports, and increases the balance of trade.
E) An increase in the real exchange rate raises imports, raises exports, and increases the balance of trade.