Question

Suppose that over the past decade, US inflation is greater than in Mexico. Assume that the dollar appreciates relative to the Mexican peso. Given this we know thatA. the real exchange rate can decrease or remain the same, but not increaseB. the real exchange rate remains unchangedC. the real exchange rate can increase or remain the same, but not decreaseD. the real exchange rate must increase

Answer 1

Relative to USA, the exchange rate shall decrease because as the currency of USA i.e. dollars appreciates, it makes the imports cheaper for USA and exports expensive for other country.

Step-by-step explanation: