Question:
Suppose massive capital outflows cause nominal exchange rate to depreciate by 10%. At the same time, foreign and domestic price levels rise by 5% and 20% respectively. What will be the approximate change in real exchange rate?
Suppose massive capital outflows cause nominal exchange rate to depreciate by 10%. At the same time, foreign and domestic price levels rise by 5% and 20% respectively. What will be the approximate change in real exchange rate?
Updated On: Mar 11, 2024
- Depreciation by 2.5%
- Depreciation by 5%
- Appreciation by 25%
- Depreciation by 25%
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The Correct Option is A
Solution and Explanation
The correct option is(A): Depreciation by 2.5%
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