The Reason the Real and Nominal Exchange Rates May Differ

question 100

Multiple Choice

The reason the real and nominal exchange rates may differ in the short run is:

• A) a sticky nominal exchange rate.
• B) sticky prices.
• C) price and nominal exchange rate stickiness.
• D) differences in the nominal interest rate across countries.
• E) differences in the inflation rate across countries.

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Definitions:

Business

An organization or enterprising entity engaged in commercial, industrial, or professional activities.

Consumer Price Index

An index measuring the change in the price level of a basket of consumer goods and services purchased by households.

Basket

A collection of goods, services, or financial instruments grouped together for the purpose of analysis, comparison, or investment.

CPI

Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate inflation.