If we assume sticky prices in both foreign and domestic trading nations, the rate of pass-through from the nominal to the real exchange rate falls as:
A) the percentage of traded goods priced in foreign currencies rises.
B) the percentage of traded goods priced in the domestic currency rises.
C) the percentage change in the exchange rate exceeds the percentage increase in inflation.
D) traders find new markets and are able to avoid nations with currency depreciations.

Question

Quizplus · Accepted Answer

The percentage of traded goods priced in foreign currencies rises means that the price of imported goods is less affected by changes in the exchange rate, so the pass-through from the nominal to the real exchange rate falls.

If We Assume Sticky Prices in Both Foreign and Domestic