Suppose that Cambodia becomes the next popular tourist destination. You notice that hotels, restaurants, and other services cost much less there than in the United States. From the perspective of the U.S. dollar, what would be the real exchange rate of the Cambodian riel?
a) The real exchange rate would be 0.
b) The real exchange rate would be 1.
c) The real exchange rate would be greater than 1.
d) The real exchange rate would be less than 1.
Ans: c) The real exchange rate would be greater than 1.
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The quantity theory of money states that if the velocity of money is stable or at least predictable, then: a. the quantity of money in circulation determines real GDP in the short run
b. the quantity of money in circulation determines aggregate spending. c. the quantity of money in circulation determines both real GDP and the price level in the long run. d. the quantity of money in circulation determines only the price level in the long run. e. the quantity of money in circulation determines the potential output in the long run.