Which of the Following, All Else Fixed, Will Cause the Real

question 38

Multiple Choice

Which of the following, all else fixed, will cause the real exchange rate to increase?

• A) A nominal depreciation.
• B) An increase in the foreign price level.
• C) A decrease in the domestic price level.
• D) An increase in domestic stock prices.
• E) A nominal appreciation.

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Definitions:

Inflationary Expectations

The anticipations of consumers, businesses, and investors regarding the rate of inflation in the future.

Unexpected Change

A sudden and unforeseen event that can significantly impact individuals, organizations, or the economy.

Long-run Changes

Transformations or trends that occur over a significant period, affecting economic structures, demographic patterns, and technological advancements.

Potential GDP

An estimate of the maximum level of economic activity an economy can sustain over a period without leading to inflation.