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Question 3 1 pts Suppose that over the past decade, U.S. inflation is less than that in Mexico. Further assume that during thSuppose that over the past decade, U.S. inflation is less than that in Mexico. Further assume that during this same period, the dollar depreciates relative to the Mexican peso. Given this information, Group of answer choices the real exchange rate remains unchanged the real exchange rate must decrease the real exchange rate must increase. the real exchange rate can increase or remain the same, but not decrease.

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Answer #1

Answer :- Option 'b' is the correct Answer

Here if it is assumed that over the past decade, U.S. inflation is less than that in Mexico. Further assume that during this same period, the dollar depreciates relative to the Mexican peso. It is possible when the real exchange rate must decrease.

the rate at which a person can trade the goods and services of one country for the goods and services of another is called as real exchange rate.

Relatively high local inflation, imports will increase, exports will decrease, local currency should depreciate by the same degree as inflation differential.

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