The price of the average domestic good or service relative to the price of the average foreign good or service,when prices are expressed in terms of a common currency,is called the _________ exchange rate.

Question

Quizplus · Accepted Answer

The real exchange rate compares the prices of domestic and foreign goods and services adjusted for inflation, which gives a more accurate representation of the relative prices between two countries. The other options, such as flexible or fixed exchange rates, refer to the type of exchange rate regime rather than the comparison of prices between countries. Fundamental exchange rate refers to the long-term equilibrium exchange rate based on economic fundamentals, while nominal exchange rate refers to the exchange rate without adjustment for inflation.

The Price of the Average Domestic Good or Service Relative