The "real," or inflation-adjusted, exchange rate is
A) the balance of trade.
B) the budget deficit.
C) the purchasing-power ratio.
D) unimportant to the U.S. economy.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

The "real," or inflation-adjusted, exchange rate, is essentially the purchasing-power ratio between two currencies, taking into account the relative prices of a standard set of goods and services in the two countries. This contrasts with the nominal exchange rate, which is the rate at which one currency can be exchanged for another without adjusting for inflation differences.

The "Real," or Inflation-Adjusted, Exchange Rate Is