In the short run, the real exchange rate moves with:

Question

Quizplus · Accepted Answer

In the short run, the real exchange rate moves with unanticipated changes in the nominal exchange rate. This means that when there is an unexpected change in the nominal exchange rate, there will be a corresponding change in the real exchange rate. This is because the nominal exchange rate is the rate at which one currency can be exchanged for another, while the real exchange rate takes into account the relative prices in the two economies. Therefore, an unexpected change in the nominal exchange rate will affect the relative prices in the two economies, which will in turn affect the real exchange rate.

In the Short Run, the Real Exchange Rate Moves With