Suppose the Canadian nominal exchange rate does not change,but prices rise faster in Canada than in all other countries.Based on this information,the Canadian real exchange rate
A)does not change.
B)rises.
C)declines.
D)There is not enough information to answer the question

Question

Quizplus · Accepted Answer

When prices rise faster in Canada than in all other countries, this implies that Canada is experiencing higher inflation. This means that the purchasing power of Canadian consumers has declined relative to foreign consumers. This causes a decrease in the real exchange rate, which means that foreign goods are relatively cheaper compared to Canadian goods. Therefore, B is the correct answer.

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