A10 Suppose that P = 100, P* = 200, e = 0.75 where P is the domestic price level, P* is the foreign price level and e is the nominal exchange rate (i.e. number of domestic currency units required to buy 1 unit of foreign currency). a) Find the real exchange rate. b) If the domestic price level increases, what will be the effect on the real exchange rate, imports and exports?

Principles of Economics (MindTap Course List)
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ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter31: Open-Economy Macroeconomics: Basic Concepts
Section31.2: The Price For International transaction: Real And Nominal Exchange Rate
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A10

Suppose that P = 100, P* = 200, e = 0.75 where P is the domestic price level, P* is the foreign price level and e is the nominal exchange rate (i.e. number of domestic currency units required to buy 1 unit of foreign currency).
a) Find the real exchange rate.
b) If the domestic price level increases, what will be the effect on the real exchange rate, imports and exports?

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