A10 Suppose that P = 100, P* = 200, e = 0.75 where P is the domestic price level, P* is the foreign price level and e is the nominal exchange rate (i.e. number of domestic currency units required to buy 1 unit of foreign currency). a) Find the real exchange rate. b) If the domestic price level increases, what will be the effect on the real exchange rate, imports and exports?
A10 Suppose that P = 100, P* = 200, e = 0.75 where P is the domestic price level, P* is the foreign price level and e is the nominal exchange rate (i.e. number of domestic currency units required to buy 1 unit of foreign currency). a) Find the real exchange rate. b) If the domestic price level increases, what will be the effect on the real exchange rate, imports and exports?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A10
Suppose that P = 100, P* = 200, e = 0.75 where P is the domestic
a) Find the real exchange rate.
b) If the domestic price level increases, what will be the effect on the real exchange rate, imports and exports?
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