Changes in the real exchange rate
A) reflect changes in the purchasing power of one currency relative to the rest of the world.
B) indicate changes in the prices of goods produced in one country relative to the rest of the world.
C) are positive if domestic prices in one country climb relative to those in the rest of the world.
D) can be caused by changes in either the domestic price index or the price index of goods produced and traded across the rest of the world.
E) all of the above.

Question

Quizplus · Accepted Answer

The real exchange rate adjusts the nominal exchange rate to reflect price levels in two countries, indicating changes in purchasing power, relative prices of goods, and can be influenced by changes in domestic or foreign price levels, making all the provided options correct.

Changes in the Real Exchange Rate