The real effective exchange rate for the U.S dollar ?
Correct answer: C. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?
- A. reflects only the influences of merchandise or real trade on the dollar's exchange value
- B. reflects only transactions in the currency futures market
- C. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?
- D. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?
Explanation
The real effective exchange rate is a trade-weighted average of a currency against those of major trading partners, adjusted for relative inflation. Without inflation adjustment, it would be the nominal effective exchange rate.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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