The real exchange rate of Japanese yen to Australian dollars will increase if Australia's price level ________ and the nominal exchange rate of yen to the dollar ________.

Question

Quizplus · Accepted Answer

The real exchange rate is the price of one currency in terms of another currency, adjusted for the difference in price levels between the two countries. If Australia's price level increases, then the yen will be worth more in terms of Australian dollars, and the real exchange rate will increase. If the nominal exchange rate of yen to the dollar also rises, then the yen will be worth even more in terms of Australian dollars, and the real exchange rate will increase even further.

The Real Exchange Rate of Japanese Yen to Australian Dollars