Under a Fixed Exchange Rate System, If the Inflation Rate

question 67

Multiple Choice

Under a fixed exchange rate system, if the inflation rate in the United States is 5 percent a year and the inflation rate in Australia is 0 percent a year, then the U.S. real exchange rate will

• A) remain constant.
• B) increase 5 percent a year.
• C) decrease 5 percent a year.
• D) possibly increase or decrease.

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