Ch49 Exchange Rate

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What is a nominal exchange rate?

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A nominal exchange rate is one that is expressed in monetary terms, usually in US dollars.

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What is a real exchange rate?

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A real exchange rate is a currency’s value in terms of its real purchasing power.

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What is a trade weighted exchange rate?

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A trade weighted exchange rate is the price of one currency in terms of a basket or selection of other currencies.

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What is a fixed exchange rate?

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A fixed exchange rate is one that is determined by the government.

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What occurs during a devaluation of a fixed exchange rate?

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A devaluation occurs when the government lowers the price of its currency, usually in relation to the US dollar.

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What occurs during a revaluation of a fixed exchange rate?

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A revaluation occurs when the government increases the price of its currency.

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What is a managed float?

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A managed float is when the exchange rate is allowed to fluctuate within a given range, with upper and lower limits.

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What does the Marshall–Lerner condition state?

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The Marshall–Lerner condition states that for a fall in the exchange rate to be successful in reducing a current account deficit, the sum of the price elasticities of demand for exports and imports must be greater than 1.