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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 18, Problem 4CQQ
Textbook Problem
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If a nation’s currency doubles in value on foreign exchange markets, the currency is said to ________, reflecting a change in the _______ exchange rate.

a. appreciate, nominal

b. appreciate, real

c. depreciate, nominal

d. depreciate, real

Expert Solution
To determine
Effect of doubling the currency.

Explanation of Solution

Option (a):

If a nation’s currency doubles in value on foreign exchange markets, the currency is said to be appreciated effecting a change in the nominal exchange rate. The nation doubled its currency value means the currency is appreciated. When the value of currency increases, it affects the exchange rate of currency that a person can trade. Thus, option “a” is correct.

Option (b):

When the value of currency increases, it affects the nominal exchange rate and does not reflect in the real exchange rate. Real exchange rate is the rate at which a person can trade goods and services of the country for the goods and services of another country...

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