What Determines the Real Exchange Rate and What Determines the Nominal

question 98

Essay

What determines the real exchange rate and what determines the nominal exchange rate in a small open economy with perfect capital mobility, fully employed factors of production, and flexible prices?

---

Definitions:

Door-In-The-Face Technique

A compliance strategy that involves making a large request that is expected to be refused so that a smaller request will be accepted.

Social Facilitation Method

A process by which the presence of others enhances an individual's performance on tasks.

Foot-In-The-Door Technique

A persuasion strategy where a small request is made first, with the aim of getting compliance for a larger request later.

Social Manipulation Technique

Strategies or methods used to influence or control others' behaviors, attitudes, or perceptions in social contexts.