Assuming No Change in the Nominal Exchange Rate, How Will

question 233

Multiple Choice

Assuming no change in the nominal exchange rate, how will a lower rate of inflation in the United States relative to Canada affect the real exchange rate between the two countries? (Assume Canada is the "domestic" country.)

• A)The real exchange rate will rise.
• B)The real exchange rate will fall.
• C)The real exchange rate will be unaffected.
• D)The impact on the real exchange rate cannot be predicted.