We often distinguish real from nominal variables.
[4 points]
a) Explain the difference between the nominal and the real exchange rate.
[5 points] the nominal exchange rate doesn’t adjust, what happens to the real exchange rate? [3
b) If the local economy experiences a higher rate of price inflation than the United States and
points]
c) Explain why and how this change in the real exchange rate affects the level of the
country’s imports and exports.