If foreign inflation is higher than domestic inflation, the real exchange rate will remain constant if A. the domestic country uses tariffs to limit foreign purchases of their goods that are becoming relatively cheap. B. the domestic country uses financial measures to limit foreign capital inflows. C. the nominal exchange rate of the domestic country appreciates against the foreign country currency. D. the nominal exchange rate of the domestic country depreciates against the foreign country currency.
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In each of the following scenarios, suppose that the two nations are the only trading nations in the world. Given inflation and the change in the nominal exchange rate, which nation's goods become more attractive? a. Inflation is $10 \%$ in the United States and $5 \%$ in Japan; the U.S. dollar-Japanese yen exchange rate remains the same. b. Inflation is $3 \%$ in the United States and $8 \%$ in Mexico; the price of the U.S. dollar falls from 12.50 to 10.25 Mexican pesos. c. Inflation is $5 \%$ in the United States and $3 \%$ in the euro area; the price of the euro falls from $\$ 1.30$ to $\$ 1.20$. d. Inflation is $8 \%$ in the United States and $4 \%$ in Canada; the price of the Canadian dollar rises from US\$ 0.60 to US $\$ 0.75$.
In each of the following scenarios, suppose that the two nations are the only trading nations in the world. Given inflation and the change in the nominal exchange rate, which nation's goods become more attractive? a. Inflation is $10 \%$ in the United States and $5 \%$ in Japan; the U.S. dollar-Japanese yen exchange rate remains the same. b. Inflation is $3 \%$ in the United States and $8 \%$ in Mexico; the price of the U.S. dollar falls from 12.50 to 10.25 Mexican pesos. c. Inflation is $5 \%$ in the United States and $3 \%$ in the euro area; the price of the euro falls from $\$ 1.30$ to $\$ 1.20$ d. Inflation is $8 \%$ in the United States and $4 \%$ in Canada; the price of the Canadian dollar rises from $\mathrm{US} \$ 0.60$ to $\mathrm{US} \$ 0.75 .$
Ronald P.
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