If there is a fixed-exchange-rate system, then in the long run:
A) the nominal exchange rate is fixed, but the real exchange rate is free to vary.
B) the real exchange rate is fixed, but the nominal exchange rate is free to vary.
C) both the nominal and real exchange rates are fixed.
D) the nominal and real exchange rates vary by a fixed amount.

Question

Quizplus · Accepted Answer

In a fixed-exchange-rate system, the nominal exchange rate is set by the government or central bank and does not change, or changes only within very narrow boundaries. However, the real exchange rate, which adjusts the nominal rate by the relative price levels between countries, can vary due to changes in inflation rates, productivity, and other economic factors.

If There Is a Fixed-Exchange-Rate System, Then in the Long