Suppose the Mexican nominal exchange rate does not change,but prices rise faster abroad than in Mexico.Based on this information,the Mexican real exchange rate
A)does not change.
B)rises.
C)declines.
D)None of the above is necessarily correct.

Question

Quizplus · Accepted Answer

If the nominal exchange rate in Mexico remains the same, but prices abroad rise faster than in Mexico, this means that the purchasing power of the Mexican currency has declined relative to the foreign currency. This is because it can buy fewer goods and services than before, leading to a decline in the real exchange rate.

Suppose the Mexican Nominal Exchange Rate Does Not Change,but Prices