What is the real exchange rate? What is its relationship to the current account?
What will be an ideal response?
Defined as: EP /P (the exchange rate multiplied by foreign prices, divided by domestic prices).
While the nominal exchange rate measures how much of a foreign currency one can buy with a unit of domestic currency, the real exchange rate measures how many goods and services one could buy.
A rise in the real exchange rate (a depreciation of domestic currency) means that domestic goods are cheaper compared to foreign goods, so exports increase and imports decrease. Aggregate demand increases and the CA rises. A fall in the real exchange rate has the opposite effect: Aggregate demand decreases and the CA falls.
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A college must decide if it wants to offer more adult literacy classes. This decision involves answering the economic question of "what to produce."
Indicate whether the statement is true or false
The amount the government budget deficit would be if the economy were at full employment is known as the
A) primary deficit. B) full-employment deficit. C) natural deficit. D) current deficit.
Which of the following is characteristic of a monopolistically competitive firm?
a. The firm faces an upward-sloping demand curve. b. The firm faces an inelastic demand curve. c. The firm faces a horizontal demand curve. d. The firm produces a differentiated product.
One key characteristic that is distinctive of an oligopoly market is that:
a. the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve. b. the decisions of one seller often influences the price of products, the output, and the profits of rival firms. c. there is only one firm that produces a product for which there are no good substitutes. d. there are many sellers in the market and each is small relative to the total market.