If the Real Exchange Rate Is High, Greater Than 1

question 6

Multiple Choice

If the real exchange rate is high, greater than 1,

• A) it is cheaper to buy goods domestically than abroad.
• B) foreign goods would be cheaper than domestic goods.
• C) the nominal exchange rate is depreciating.
• D) the nominal exchange rate is appreciating.
• E) the purchasing power of domestic income has diminished.

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Definitions:

Fixed Manufacturing Costs

Expenses that do not change with the level of production, including things like rent for factory space and salaries of permanent staff.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.

Product Costs

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Also see Inventoriable costs.

Manufacturing Costs

Expenses directly related to the production of goods, including direct materials, direct labor, and manufacturing overhead.