When We Measure the Impact of Exchange Rate Changes on a Nation's

question 74

Multiple Choice

When we measure the impact of exchange rate changes on a nation's trade balance, the bilateral exchange rates explain only part of the change. To assess the overall change, we need to calculate:

• A) the home multilateral exchange rate, or real effective exchange rate.
• B) a nation's income versus income changes in the rest of the world.
• C) a nation's marginal propensity to consume imports.
• D) the movement over time of the trade balance along with long-run expectations of the exchange rate.

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