Question: Suppose the euro dollar exchange rate moves from 0 90 per euro
Suppose the euro-dollar exchange rate moves from $0.90 per euro to $0.92 per euro. At the same time, the prices of Europeanmade goods and services rise 1 percent, while prices of Americanmade goods and services rise 3 percent. What has happened to the real exchange rate between the dollar and the euro? Assuming the same change in the nominal exchange rate, what if inflation were 3 percent in Europe and 1 percent in the United States?
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