Which of the Following Would Cause the Real Exchange Rate

question 12

Multiple Choice

Which of the following would cause the real exchange rate of the U.S.dollar to appreciate?

• A)the U.S.government budget deficit decreases
• B)capital flight from the U.S.
• C)the U.S.imposes import quotas
• D)None of the above is correct.

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Definitions:

Nominal Interest Rate

The interest rate in terms of nominal (not adjusted for purchasing power) dollars.

Coupon Rate

A bond’s interest payments per dollar of par value.

Expected Rate of Inflation

An estimate of the rate at which the general level of prices for goods and services will rise over a period.

Annual Real Rate

The annual rate of return on an investment, adjusted for inflation, indicating the real increase in the value of the investment over a year.