When E decreases by 3%,we know that

Question

Quizplus · Accepted Answer

When the exchange rate E decreases by 3%, it means that the foreign currency is now worth more in relation to the domestic currency. Therefore, there has been a real depreciation of the domestic currency. If the price level P also decreases by 3%, we would have a nominal depreciation of the domestic currency. However, if the price level remains constant, we would have a real depreciation but no nominal depreciation. Therefore, the correct answer is D) nominal depreciation.

When E Decreases by 3%,we Know That