For given domestic and foreign price levels,an increase in the nominal exchange rate __________ the real exchange rate.

Question

Quizplus · Accepted Answer

An increase in the nominal exchange rate, assuming domestic and foreign price levels remain constant, leads to an increase in the real exchange rate. This is because the real exchange rate is the nominal exchange rate adjusted for price levels, and a higher nominal rate makes domestic goods more expensive relative to foreign goods.

For Given Domestic and Foreign Price Levels,an Increase in the Nominal