If the Nominal Exchange Rate Rises 2%,domestic Inflation Is 3%,and

question 3

Multiple Choice

If the nominal exchange rate rises 2%,domestic inflation is 3%,and foreign inflation is 4%,what is the percent change in the real exchange rate?

• A)5%
• B)3%
• C)1%
• D)-1%

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Definitions:

Medium of Exchange

A mediating tool or mechanism designed to ease the process of buying, selling, or exchanging products among individuals or entities.

Federal Reserve

The primary banking authority in the United States, tasked with setting monetary policy, supervising banking institutions, ensuring the stability of the financial system, and delivering financial services.

Bank Failures

The circumstance where a bank fails to meet its obligations to its depositors or creditors, leading to its insolvency or being shut down by regulatory agencies.

Excess Reserves

The reserves held by banks over and above the legally mandated minimum to meet potential withdrawals by customers.