Concerning the Exchange Rate Index of the U

question 76

Multiple Choice

Concerning the exchange rate index of the U.S.dollar, suppose that the dollar's real exchange rate index rises from 95 to 115.This means that

• A) the dollar has depreciated against the currencies of its major trading partners.
• B) the dollar has appreciated against the currencies of its major trading partners.
• C) the dollar's nominal exchange rate index falls.
• D) the dollar's nominal exchange rate index remains constant.

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Definitions:

Real Interest Rate

The interest rate adjusted for inflation, reflecting the real cost of borrowing and the real yield on savings.

Purchasing Power

The value of a currency expressed in terms of the quantity of goods or services that one unit of money can buy, often influenced by inflation.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, often used as an indicator of inflation.

Nominal Interest Rate

The interest rate before adjustments for inflation, indicating the basic rate at which interest is paid or earned.