Multiple Choice 1) Which of the following best defines the real exchange rate? A

Question

Multiple Choice 1) Which of the following best defines the real exchange rate? A) the price of foreign bonds in terms of domestic bonds B) the price of foreign currency in terms of domestic currency C) the price of domestic goods in terms of foreign goods D) the price of domestic currency in terms of foreign currency 2) When the dollar appreciates relative to the pound, the pound price of the dollar A) increases. B) decreases C) does not change. D) increases or decreases, depending on the amount of the depreciation 3) When E increases by 5%, we know that A) a real appreciation will occur if P decreases by 5%. B) a real depreciation will occur if P also increases by 5%. C) a nominal appreciation will occur D) a nominal depreciation will occur

Explanation / Answer

1.option c.

The real Exchange rate is defined as the price of domestic goods in terms of foreign goods.

2.optionA.

When the dollar appreciates ,i.e when the Exchange rate increases the price of pounds relative to the dollar also increases.

This will lead to decrease in Exports and increase in Imports

3.option C.

E is the Exchange rate.

If there is an increase in E by 5%,then there is an increase in the nominal interest rate and an appreciation of the nominal Exchange rate.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.