Describe What Has Happened to the Real Exchange Rate Value

question 24

Essay

Describe what has happened to the real exchange rate value of the dollar in each of the following examples:
(a) The U.S.price level rises by 10 percent, the European price level remains constant, and the nominal U.S.exchange rate falls by 10 percent.
(b) The U.S.price level rises by 9 percent, the European price level rises by 6 percent, and the nominal U.S.exchange rate falls by 2 percent.
(c) The U.S.price level falls by 2 percent, the European price level remains constant, and the nominal U.S.exchange rate rises by 4 percent.
(d) The U.S.price level remains constant, the European price level rises by 3 percent, and the nominal U.S.exchange rate rises by 2 percent.

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Definitions:

Dividend

A payout of a portion of a company's earnings to its shareholders, typically in the form of cash or stock.

Sole Proprietorship

Sole Proprietorship is a business structure owned and operated by one individual, where there is no legal distinction between the owner and the business.

Legal Entities

Entities recognized by law that have rights and responsibilities, such as corporations, partnerships, and sole proprietorships.

Accounting Entities

Organizations, businesses, or units for which separate financial statements are prepared, distinct from any other economic activities.