If we set the real effective exchange rate index between the United Kingdom and the United States equal to 100 in 2005, and find that the U.S. dollar has changed to a value of 91.4, then from a competitive perspective the U.S. dollar is:

Question

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The U.S. dollar being at a value of 91.4 compared to the base year (when the index was 100) indicates that the dollar has depreciated relative to the currency of the United Kingdom. This depreciation makes U.S. goods cheaper and more competitive abroad, hence the dollar is considered undervalued from a competitive perspective.

If We Set the Real Effective Exchange Rate Index Between