If the Chinese government wants to keep the real and nominal exchange rates between the yuan and the U.S. dollar fixed at 8 yuan per dollar without government intervention in the foreign exchange market, the _____ rate in China must be _____ that in the United States.

Question

Quizplus · Accepted Answer

To keep both the real and nominal exchange rates fixed without government intervention, the inflation rate in China must be equal to that in the United States. This ensures that the purchasing power parity (PPP) remains constant, maintaining the fixed exchange rate naturally.

If the Chinese Government Wants to Keep the Real and Nominal