If the Canadian nominal exchange rate does not change, but prices rise faster in Canada than in all other countries, then the Canadian real exchange rate
A)does not change.
B)rises.
C)declines.
D)There is not enough information to answer the question

Question

Quizplus · Accepted Answer

The real exchange rate takes into account both the nominal exchange rate and the relative prices between two countries. If prices rise faster in Canada than in all other countries, then the Canadian real exchange rate must rise in order to reflect the higher prices and maintain purchasing power parity.

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