Assume that the nominal exchange rate increases by 2%.If prices (both domestic and foreign do not change),we know that
A)domestic goods are now relatively cheaper.
B)domestic goods are now relatively more expensive.
C)foreign goods are now relatively cheaper.
D)both B and C

Question

Quizplus · Accepted Answer

An increase in the nominal exchange rate means that the domestic currency has depreciated, making domestic goods more expensive for foreigners and foreign goods cheaper for domestic consumers.

Assume That the Nominal Exchange Rate Increases by 2