Data on the relationship between the U.S. multilateral real exchange rate and the U.S. trade balance shows:
a. a surprising result that the decrease in the trade balance is correlated with an increase (depreciation) of the U.S. dollar multilateral real exchange rate.
b. a predictable result that the increase in the trade balance is correlated with an increase (depreciation) of the U.S. dollar multilateral real exchange rate.
c. a correlation that is so weak it cannot be used to support the theory that the trade balance is related to the real effective exchange rate of the U.S. dollar.
d. a surprising result that the increase in the U.S. trade balance occurs with a decrease (appreciation) in the real effective exchange rate of the dollar.
Ans: b. a predictable result that the increase in the trade balance is correlated with an increase (depreciation) of the U.S. dollar multilateral real exchange rate.
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