Under a fixed exchange rate system, if the inflation rate in the United States is 5 percent a year and the inflation rate in Australia is 0 percent a year, then the U.S. real exchange rate will

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, if the U.S. experiences higher inflation than Australia, the real value of U.S. goods relative to Australian goods increases. This means the U.S. real exchange rate increases because U.S. goods become relatively more expensive compared to Australian goods.

Under a Fixed Exchange Rate System, If the Inflation Rate