State the impact of each of the following changes (other variables remaining unchanged) on the real exchange rate. (d) The nominal exchange rate moves from 86 to 90 for a U.S. dollar. (e) The nominal exchange rate depreciates by 10 percent at the same time that local inflation is 10 percent and the U.S. price level is stable.
State the impact of each of the following changes (other variables remaining unchanged) on the real exchange rate. (d) The nominal exchange rate moves from 86 to 90 for a U.S. dollar. (e) The nominal exchange rate depreciates by 10 percent at the same time that local inflation is 10 percent and the U.S. price level is stable.
Chapter1: Making Economics Decisions
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Question 4
State the impact of each of the following changes (other variables remaining unchanged) on the real exchange rate.
(d) The nominal exchange rate moves from 86 to 90 for a U.S. dollar.
(e) The nominal exchange rate
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Step 1
Exchange rate refers to the amount of domestic currency that required to purchase one unit of foreign currency.
The exchange rate is determined by the demand and supply of the currency in the foreign exchange market. If the supply of currency is greater than the demand for that particular country, then the exchange rate would decreases and vice versa.
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