First, write out the expression/equation for the real exchange rate. Second, explain all factors that determine the real exchange rate
What will be an ideal response?
The real exchange rate is the price of domestic goods in terms of foreign goods. It is represented as EP/P*. An increase in E, a nominal appreciation, raises the pound price of the dollar. This will also raise the relative price of domestic goods. An increase in P*, the foreign price level, reflects an increase in the foreign currency price of foreign goods. This will reduce the relative price of domestic goods. And finally, an increase in P, the domestic price level, reflects an increase in the dollar price of domestic goods. This will increase the relative price of domestic goods in terms of foreign goods.
You might also like to view...
The above figure represents a perfectly competitive industry that is taken over by a single firm and operated as a monopoly
a) What was the competitive price and quantity? b) What is the monopoly price and quantity? c) What area represents consumer surplus under perfect competition? d) What area represents consumer surplus under monopoly? e) What area represents the deadweight loss of monopoly?
A higher nominal interest rate ________ the profit-maximizing level of MPK for firms, leading firms to a ________ capital-output ratio, thus ________ net investment
A) raises, higher, raising B) raises, lower, lowering C) lowers, higher, raising D) lowers, higher, lowering E) lowers, lower, raising
If General Motors is earning only a normal profit,
a. it is making economic profit b. it is breaking even c. it is suffering an economic loss d. it is covering only explicit costs e. it is covering only implicit costs
The process by which an economic variable is adjusted to remove the effects of changes predicted to occur at the time of year is known as
a. structural change b. real change c. macroeconomic adjustment d. unemployment adjustment e. seasonal adjustment.