EBK MACROECONOMICS (FOURTH EDITION)
EBK MACROECONOMICS (FOURTH EDITION)
4th Edition
ISBN: 9780393616125
Author: Jones
Publisher: YUZU
Question
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Chapter 20, Problem 1RQ
To determine

Difference between the nominal exchange rate and real exchange rate.

Expert Solution & Answer
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Explanation of Solution

The unit of currencies exchanged with or for a foreign currency is in terms of the nominal exchange rate. The real exchange rate is what an individual purchased using one unit of foreign currency. In this case, it shows the real value of currency that is not with respect to inflation. Also, the real exchange rate shows how many units of one country’s goods must be given up to purchase those same goods in another country. If the nominal exchange rate changes or adjusted to inflation, then it is known that as real exchange rate.

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