Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 13, Problem 1RQ
To determine
To know:Definition of nominal and real exchange rate and relation between them.
Expert Solution & Answer
Explanation of Solution
Nominal exchange rate is the rate at which one currency is traded over another. It is a monetary term.
Real exchange rate is the quantity of goods and services which can be changed with another country’s goods and services. It is a real term.
Changes in the two-exchange rate are related as follows:
Nominal exchange rate is a monetary phenomenon. It shows value of one currency over another while real exchange rate is real phenomenon which shows quantity of goods and services which can be exchanged.
Real exchange rate = Nominal exchange rate − inflation.
Any change in real exchange rate or inflation rate affects nominal exchange rate.
Economics Concept Introduction
Introduction:
Exchange rate is the rate at which one country’s currency is traded over another.
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