The Real Exchange Rate Between the Domestic Currency of a Country

question 3

Multiple Choice

The real exchange rate between the domestic currency of a country and the foreign currency increases by 2 percent.If the domestic price level increases by 4 percent while the foreign price level increases by 3 percent, the nominal exchange rate will​

• A)​increase by 1 percent.
• B)​decrease by 3 percent
• C)​increase by 2.5 percent
• D)​decrease by 3 percent.

---

Definitions:

Comparative Advantage

The ability of an entity to produce goods or services at a lower opportunity cost than others, leading to more efficient trade and production distribution.

Gains from Specialization

The increased efficiency and output that result when individuals or entities focus on specific tasks or activities they perform best.

Exchange Rates

The worth of one currency in relation to another, establishing how much of one currency can be exchanged for another.

Exchange Rate

The worth of a particular currency when converted into a different currency.