What effect does the fixing of the nominal exchange rate have on the real exchange rate?
a. The real exchange rate is fixed at the same level.
b. The nominal exchange rate is fixed, but the real exchange rate varies with relative income levels.
c. The real exchange rate still fluctuates with relative international prices.
d. None of the above.
Question 2
Which of the following statements is correct?
a. Purchasing Power Parity occurs when nominal interest rates are the same in two countries.
b. Purchasing Power Parity means that the nominal exchange rate is 1 to 1.
c. Purchasing Power Parity means that two countries have the same standard of living.
d. Purchasing Power Parity means that the real exchange rate equals 1 to 1.
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