If a nation trades with another nation in a foreign currency (such as some commodities sold that are priced in U.S. dollars), then, when nominal exchange rates change, the real effective exchange rate will:
A) change by more.
B) change by less.
C) change in exactly the same proportion.
D) not change at all.

Question

Quizplus · Accepted Answer

The real effective exchange rate adjusts for differences in price levels between countries, so it changes by less than the nominal exchange rate when nominal exchange rates change.

If a Nation Trades with Another Nation in a Foreign