If the Annual Inflation Rate Is 3 Percent in France

question 24

Multiple Choice

If the annual inflation rate is 3 percent in France and 5 percent in Italy, by how much will the real exchange rate change over a year? Assume that both countries use the euro so their nominal exchange rate cannot change.

• A)2 percent
• B)3/5 percent
• C)−3/5 percent
• D)−2 percent