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

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Under a fixed exchange rate system, the exchange rate remains constant, but the real exchange rate can be affected by changes in inflation rates. If the inflation rate in Australia is higher than in the United States, then goods and services in Australia become relatively more expensive compared to those in the United States. As a result, the real exchange rate between the two countries decreases. Therefore, the U.S. real exchange rate will decrease by 5 percent a year.

Under a Fixed Exchange Rate System, If the Inflation Rate