Author Question: First, write out the expression/equation for the real exchange rate. Second, explain all factors ... (Read 92 times)

itsmyluck · **on:** Jun 30, 2018

First, write out the expression/equation for the real exchange rate. Second, explain all factors that determine the real exchange rate.

What will be an ideal response?

Question 2

Which of the following individuals first discovered the relationship between unemployment and inflation?

A) Solow
B) Samuelson
C) Friedman
D) Phillips

Shshxj · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The real exchange rate is the price of domestic goods in terms of foreign goods. It is represented as EP/P. An increase in E, a nominal appreciation, raises the pound price of the dollar. This will also raise the relative price of domestic goods. An increase in P, the foreign price level, reflects an increase in the foreign currency price of foreign goods. This will reduce the relative price of domestic goods. And finally, an increase in P, the domestic price level, reflects an increase in the dollar price of domestic goods. This will increase the relative price of domestic goods in terms of foreign goods.

Answer to Question 2

D