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All Else Equal, What Will Happen to the Real Exchange

question 161

Essay

All else equal, what will happen to the real exchange rate in the United States under each of the following circumstances?
(a) the nominal exchange rate for the U.S. dollar depreciates
(b) domestic prices in the U.S. increase
(c) prices in the rest of the world rise


Definitions:

Curve

A graphical representation of the relationship between two or more variables in a coordinate system, often used in economics to illustrate supply and demand.

Shutdown Point

The level of operation at which a company does not benefit from continuing operations and may decide to temporary halt production—it's where marginal cost equals average variable cost.

Lowest Price

The minimum amount at which a product or service is sold, often determined by costs, competition, and market demand.

Long Run

A period in which all factors of production and costs are variable, allowing full adjustment to changes.

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