If the Mexican nominal exchange rate does not change, but prices rise faster abroad than in Mexico, then the Mexican real exchange rate
A)does not change.
B)rises.
C)declines.
D)None of the above is necessarily correct.

Question

Quizplus · Accepted Answer

The real exchange rate adjusts for differences in price levels between countries. If foreign prices rise faster than domestic prices and the nominal exchange rate remains constant, the real exchange rate declines, making foreign goods relatively more expensive.

If the Mexican Nominal Exchange Rate Does Not Change, but Prices